Buying a business in the United States can be tricky. Businesses for sale may not always be viable or represent good value, and hidden liabilities or debts can emerge post-purchase. If you have plans to buy a business such as a restaurant or a coffee shop, you should take the necessary steps to protect yourself. You must do your own due diligence both financially and legally. Remember that when buying a business, you inherit its existing problems. These problems can be costly and time-consuming to fix.
When considering a business purchase, it is crucial not to cut corners in your evaluation. What you see on the outside may not be the true picture. Ask the seller about any existing or potential legal disputes that the business is facing. Understand the nature and the status of these disputes. Find out why the owner is selling the business. The business that you would like to buy may have hidden liabilities such as legal disputes, unpaid taxes or debts. Make sure to check the most tax returns of the business as well as the updated accounting records such as balance sheet. If you want to ensure continuous operations after the business changes hands, make sure to keep key vendors and employees.
Hire a lawyer to understand the terms of major agreements that are essential to the business such as lease agreements. If the business has only several years left in the leased location, you may require the seller to get a lease extension from the landlord. Do not forget to notify tax authorities in advance of the purchase. Otherwise, you may be responsible for unpaid sales taxes of the business.
If you are buying the shares of a company rather than a business, review all the company documents prepared since the establishment of that company including, but not limited to, bylaws, stockholder agreements and corporate resolutions. In these documents, you may find some restrictions to transfer company shares.
