Purchasing an existing business can be a smart way to grow, but it also involves legal and financial risks that should be carefully reviewed. Below are four key issues every buyer should consider early in the process:
1. Creating the Right Legal Entity. Buyers should decide early which entity will own the business and how the transaction will be structured. Forming an LLC or corporation before closing can help limit personal liability, clarify ownership, and support tax planning. Forming the wrong type of entity—or not forming one at all—can create unnecessary liability long after the deal is done.
2. Accounts Receivable. Accounts receivable directly impact a business's value and cash flow. Buyers should examine how old the receivables are, whether they are collectible, and who will own them after closing. Assuming uncollectible receivables can quickly undermine an otherwise solid purchase.
3. Contracts and Existing Liabilities. Leases, vendor agreements, and customer contracts may require a third party's consent to transfer, or they may not be transferable at all. Buyers should also identify outstanding debts, litigation, or compliance issues that could hold up a purchase or carry over once the transaction is completed.
4. Employment and Regulatory Issues. Employee obligations, benefit plans, and required licenses or permits can create ongoing responsibilities for the buyer. Reviewing these issues in advance helps avoid disruptions after closing.
A business purchase is a legal transaction as much as a financial one. Our attorneys can help buyers structure acquisitions, manage risk, and complete transactions with confidence while helping prevent problems before they arise.
If you have any questions regarding a business purchase, or with any other matters related to business planning, please contact us at jfournier@jeflegal.com or 860.670.3535.