What you should consider when buying a small business
By Thomas Haught
Be your own boss. Make your own hours. You call the shots!
Have you ever considered purchasing a small business? Here is a non-exhaustive review of the documents you should expect to receive at your small business closing.
- Seller resolution. The owner of a small business will almost certainly be an entity, usually, a corporation or a limited liability company (LLC). The seller resolution is a document executed by the principals of the entity, directing the sale of the business, and usually appointing a signatory.
- Buyer resolution. You, the purchaser of a small business, should absolutely be an entity. Strictly adhering to corporate requirements can insulate you from personal liability. The buyer resolution is a document executed by the principals of the entity, directing the purchase of the business, and usually appointing a signatory.
- Bill of sale. You can think of the bill of sale as your receipt for the purchase of the business. Generally, when you purchase a small business, you are purchasing fixtures, equipment and goodwill. You also are likely purchasing inventory, which may or may not be included in the purchase price. In most cases, the inventory is not included in the purchase price, but it is calculated separately. If the space where the business is operated is leased, you also will be assigned the seller’s current lease (with the landlord’s permission) or you may enter into a new lease with the landlord.
- Sworn list of creditors. As the purchaser of a small business, you should insist on a statement from the seller that the business has no creditors.
- Purchase price allocation. Your accountant will want to know how much of the purchase price was for fixtures and equipment and how much was for good will.
- Bulk sale stop order. The seller’s attorney will notify the state that the business is being sold. The state will require that the buyer’s attorney hold back a small amount of the seller’s proceeds, until the state can determine that the seller owes no money to the state. Once the state confirms that no money is owed, a bulk sale release will be issued and the seller proceeds that were being held can be released to seller.
- Uniform Commercial Code (UCC) searches. Seller’s attorney will run a UCC search, which is a comprehensive set of laws governing all commercial transactions nationwide to confirm that no credit has a lien against any of the seller’s assets.
Buying a small business may be the most exciting thing you ever do. It also may be the scariest thing you ever do. If you do decide to purchase a small business, you must have an experienced attorney on your side.
Gardi, Haught, Fischer & Bhosale, Ltd., has closed the purchases of hundreds of small businesses and we would be excited to represent you in your small business purchase. For a free case evaluation click on the button below.