For some people, an alternative to starting a new business from scratch is the purchase of an existing business. Of course, you generally have to have some significant capital to purchase a going business, but if you can afford it, such a purchase can offer several advantages over a start-up. A going business typically already has an established location with a commercial lease in place, a customer list resulting in the expectation of recurring business from those customers, an experienced team of employees, the equipment and inventory necessary to operate the business, established relationships with suppliers and support services, and a reputation in the field in which the business operates. Precautions are in order, however, whenever you purchase an existing business. If you are considering purchasing the stock or membership interest in a corporation or limited liability company (LLC), you have to be very careful to investigate any undisclosed or contingent liabilities of that entity, because a change in ownership will have no effect on such liabilities or obligations, which can be asserted against the corporation or LLC, for example, regardless of whether the ownership has changed. There are significant differences in the tax treatment of a purchase of shares of stock, or the membership interests in an LLC, as contrasted with the purchase of assets of an existing corporation or LLC, and you will need the professional advice of an accountant and attorney to decide which method of acquisition will be most advantageous to you. There are many “deal” points to be negotiated, and you need experienced, professional assistance to suggest strategies and key provisions, and to participate in the negotiating and drafting of the purchase agreement.
Often, you will want to negotiate with the seller of the business to remain associated with the business as a consultant or employee for a period of time following the closing of the sale in order to take advantage of the seller’s knowledge, training, and experience. You will also want to consider getting a covenant not to compete from the seller. A business attorney can assist you with all the relevant considerations that go into negotiating a business purchase agreement and can draft such an agreement, as well as a preliminary term sheet or letter of intent that often precedes a more extensive definitive agreement.
Next to starting a new business, the most significant event in the life of a business is its sale and your planning, as an owner, to retire or exit the business. Again, the services of an experienced business attorney and your accountant are essential to evaluate the alternative methods available to achieve your objectives and to negotiate the agreement, or agreements, that will result in you achieving the true worth of the business. Sometimes circumstances warrant or require that the business be dissolved, and our office can guide you through that procedure as well.