Instead of trying to start a business from the ground up, many entrepreneurs decide that buying an existing business may be the best route. Why not, considering that someone else did a lot of the hard work for you, such as finding a location for the business, hiring qualified employees, and establishing a customer base.

However, there are many legal issues you need to be aware of and important steps to take before you pull the trigger and commit to investing in a business.

What You Need to Know Before Making the Big Decision

It will take a bit of research and investigation to make sure the business you are thinking about buying will be the right one for you to own. You need to focus and know exactly what you should be looking for and how you can avoid clunkers.

You need to ensure that the business you buy is really what you think it is and will be the right choice for you in the long run. Some things you need to know to accomplish this goal are:

  1. What type of business do you want to own? – It is best to choose a business that you understand, enjoy, and have the skills or education to run it effectively. If you are unfamiliar with the type of business, you should probably stay clear of it. It is hard enough to have a successful business without having to conquer a steep learning curve.
  1. How can I locate a perfect business for me? – Good, solid businesses for sale can be hard to locate. Word of mouth or fellow employees can often be the best source of leads. Other possible sources would be business brokers, real estate agents, trade magazines, newspaper ads, and the like.
  1. Research, Research, Research – It can’t be emphasized enough – you must do your due diligence and learn as much as you can about the company before pouring your hard-earned money, effort, and time into purchasing an existing business. Ask lots of questions and get answers from the current owner and employees. Find out about its goals and history to get a sense of where it has been and where it is headed. Go over the business’s finances, books, sales records, and tax returns to verify the strength of the business. Discover its strengths and weaknesses. Check vendors, customer lists and its credit history. This process could even alert you to problems that need to be addressed before a purchase.

Legal Steps to Buying a Business

Without the assistance of an experienced business lawyer, you could make many mistakes or fail to take the proper precautions when purchasing an existing business. A business lawyer experienced in the corporate law field can help prepare you for the long road ahead by handling all necessary paperwork and advising you on matters related to making a good business decision.

By having these matters handled properly right from the beginning, you have a much greater chance at being a successful entrepreneur and being happy to boot. Just some of the matters you will need an attorney to help you with are:

  • Negotiating the purchase price and terms of sale – Communication and negotiating for the purchase of a business often requires review of contracts and other legal issues. A letter of intent to purchase the business and other legal paperwork will need to be prepared during the negotiation process.
  • Choosing the best business structure for your needs – An attorney will advise you as to the best form of business to choose based on the size and type of business, financial concerns, and related tax issues. You will choose between a sole proprietorship, partnership, corporation, or co-op business after attorney review.
  • Will you buy shares or assets? – You may have to decide whether to buy only the assets or shares of that company. Your attorney will need to prepare a purchase or buy-and-sell agreement that both parties will sign that lists the obligations and requirements of both buyer and seller. The negotiated terms of the agreement will be detailed, and you may be advised to include special provisions, such as a non-competition agreement so the seller can’t start a new competing business that can affect your bottom line.
  • Prepare required legal documents for final purchase and closing – It is crucial to have an attorney walk you through all the legal steps to buying a business, as well as purchase and closing processes, to ensure the purchase is iron clad and protects you from complications in the future. The necessary documents are often lengthy and quite complex, so it is quite difficult to do this on your own. Even small errors could invalidate, threaten the purchase or expose you to unnecessary risks, so the legal cost will be worth it in the long run.
  • Getting equity financing – If you desire or need equity financing, a lawyer will prepare the shareholder agreement or review a proposal from an interested investor. It is important to learn how any new shareholder agreement will affect contracts with employees or obligations with suppliers, financial institutions, and other entities.
  • Leasing commercial space – if the existing location’s lease comes up for renewal or you are considering new space, choosing a lease can be one of your most important decisions and one of your largest expenses. Your attorney can advise you if it is good for your needs and protects you with all relevant terms. A lawyer can help prevent potential pitfalls or difficulties before you sign up for that all important commercial business lease.

Other Legal Business Liability Issues or Concerns

To protect yourself further from future liability or legal problems in the future, prospective new business owners may additionally want to get sound legal advice and help with legal agreements regarding the following:

  • Employment law, contracts, and legal proceedings
  • Purchasing property or obtaining a business mortgage
  • Protection of any intellectual property rights
  • Expanding across state lines
  • Licensing matters
  • Subcontracting regulations
  • Franchising opportunities
  • Environmental regulation and dealing with complaints
  • Resolving disagreements between business partners
  • Help with closing your business or dissolving your corporation

Because there are so many legal steps to buying a business, never take chances with your business when it comes to business legalities. If you are not confident in how to legally handle a business issue, or if the legality of your business procedures are ever questioned, it is imperative to contact your business attorney for advice. It is easier to get things right the first time than to encounter lawsuits or fines for your inadvertent actions.


Disclaimer: The content of this article is a general guideline made available for educational purposes only and is not intended to be used as legal advice for the reader’s specific situation nor in general. By reading our blog and website content, the reader acknowledges the above and understands there is no lawyer-client relationship created between you and Raipher, P.C. through this content. To get specific legal advice, we encourage you to book a free consultation with one of our lawyers to clarify the legal aspects of your specific situation.

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