Share on Facebook
Share on Twitter
Share on LinkedIn
By Sanjeev Kumar
Founding Attorney

Looking to buy an existing business is an exciting entrepreneurial adventure. Do not, however, let your excitement cloud your judgment or make you rush through this process. Buying a business is an investment. One of the best ways to protect yourself with this kind of investment is to do your due diligence. Buying a business can be a great opportunity. Conversely, buying the wrong business can lead to disaster.

What to Look for When You Are Buying a Business

There are several important things to investigate when you are looking to purchase a business. First, find out the legal status of the business. If the business is owned by a corporation or LLC, you will want to look at your purchasing options. First, you may be able to only purchase the assets of the business, not the business entity itself. In most cases, buying the assets only is the best option for the purchaser. In the alternative, you may have to buy the entire business entity. This means that you are buying the stock of the corporation or membership interests of the LLC. If you are buying the entire business entity, you will need to check the business documents such as the bylaws. You will also want to see if the business is actually in good standing with its state of incorporation. Additionally, you will definitely want to verify that the owner possesses the legal authority to sell the business.

Thoroughly examine the finances of the business. Get access to any financial documents you can and go over them with a fine tooth comb. This will involve examining the business’s balance sheets as well as tax returns and profit and loss statements. Get information regarding any outstanding debts the business has incurred. You will need to check to see whether any of these creditors have a security interest in any business assets.

As most businesses lease their business space, you should review the lease to check for things like the length of the lease. The lease may also require you to obtain the consent of the landlord in order for you to take over the leased space as the new business owner. You will also need to see whether you will have the option to renew the lease and whether or not the terms and restrictions of the lease are okay. Taking over the existing lease is also a great time to try and renegotiate the terms of the lease and try to get a lower rent.

There are many other things you should look for prior to purchasing a business. To protect yourself, get indemnity from the business seller. No matter how much you investigate before buying a business, there are bound to be things that are overlooked. Getting indemnity from the seller will ensure that the seller will defend a lawsuit and pay all associated judgments and fees for legal actions brought due to things that occurred prior to you taking ownership of the business.

Texas Business Law Attorney

The Kumar Law Firm is here to set you up for business success. If you are looking to take on a new business venture, get in touch with us today. We are here to help you protect your investment and help you on the path to a long and prosperous business path. Contact us today.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.