What is the Legal Process for Buying a Business?

In the United States, there are four standard methods for acquiring a business: purchase of an existing company from its owner, merger with another company to form one larger company, acquisition of a publicly traded corporation by purchasing all or most of its shares on the open market, and negotiation between two companies. 

The first three methods may be used to acquire either majority ownership or complete ownership. In the fourth method, one party purchases all outstanding stock from another. 

The legal process is different depending on which type of transaction is being executed. For instance, if you buy an existing business from its current owner, you need to sign a contract. The contract should specify terms such as price and payment schedule before closing the deal.  

But if you merge your company with another company, you will need to obtain shareholder approval, file a certificate of merger with government authorities, and obtain regulatory approvals. 

These are the legal steps that the legal process for buying a business::


Step 1 - Perform due diligence to make sure the business is what it appears to be

Due diligence means examining assets, liabilities, operating statements, contracts, intellectual property, and employee benefit plans. The purpose of this is to accurately determine the value of a company before purchasing it.


Step 2 - Sort out tax issues

The buyer will need to determine whether or not they will inherit tax liabilities that may be associated with the business being bought.


Step 3 - Perform legal review of contract documents

The buyer will need to review all contract documents about the business being purchased because these documents outline the key terms and conditions.


Step 4 - Make sure trade name is available for business, if applicable

When purchasing a business, take the time to make sure that the trade name for the company is available. This way, if it is not, you will know upfront and find another company with the same name.


Step 5 - Get legal advice from an attorney

Buyers should get legal advice from a qualified attorney before signing any type of agreement.


Step 6 - Determine whether there are any legal restrictions on what can be done with the business

There may be legal issues that affect your business purchase, such as zoning laws that protect a building from being converted into condominiums or other restrictions that may prevent proposed changes from occurring.


Step 7 - Negotiate the terms of the agreement

The buyer and seller must reach an agreement, which should be documented in a contract, defining the key terms and conditions that apply to the purchase of the business.


Step 8 - Close on the deal

Once you agree upon all terms outlined in your contract, you will need to close your purchase. This involves paying the seller and completing any necessary paperwork.


Step 9 - Get the tax information you need, such as your personal identification number (PIN) or employer identification number (EIN)

You may also need to get a tax payer identification number if you are not already registered with the IRS. The type of tax identification you should apply for will depend on your intentions for the business, which you discussed with the attorney during Step 5.


Important things to remember when buying a business

Before signing any agreement, it is highly recommended that you take your time to go through all these steps thoroughly. They are necessary to protect you from future issues and problems associated with buying a business. 

However, let's say that you do not want to go through all this hassle and simply want to buy a business as an investment, the way most people use acquisitions. 

To do that, you will need to choose a popular business for sale, find the seller and make an offer based on how much you think it's worth.

To determine what a company may be worth, you will need to study its industry and market and consider the potential for growth in the coming years.

Preparing a Letter of Intent is another good way to show that you are serious about buying a business and getting all parties involved up to speed with what is going on.

Once you have managed to purchase a company, the next step is to prepare the operating agreements required for your company to function properly.

These agreements should include the rules that govern how to operate within the business and what will happen if specific circumstances arise. The operating agreement template can be easily found online, so you do not have to go through any issues finding one.

While the process of buying a business may seem complex, it can be simplified by breaking down all the steps and organizing them consecutively. By doing so, you will significantly reduce the probability that something terrible will happen to your business in the future.

More aggravating than purchasing a business are the liabilities that come with owning one. It is highly recommended that you read all the terms and conditions and the policies set forth by a company before you sign any documents.

One of the most important things is to be aware of is whether or not there are any repurchase options in your contract. This way, if anything goes wrong with your purchase, you will know how to handle it accordingly.

A repurchase option is a situation in which the seller of a company has an option to buy the business back from you at a predetermined price. This makes it possible for you to get out of a deal if something goes wrong and for the owner to regain ownership of their company if they desire. Although this may sound like a good option on the surface, it is not necessarily so.

Remember that if something goes wrong and you buy a business that loses money, you will more than likely lose your investment.

If you plan to purchase a business for personal reasons, such as wanting to get out of the rat race and getting rid of all your 9-to-5 obligations, then you should go for it. Buying a business can indeed be extremely rewarding, especially if it's your first one.

If you are looking to buy a business for investments purposes, the decision will likely require more research on your end. Due to this, it is highly recommended that you take your time to conduct your own research and form opinions before you make any decisions.

One more thing that is very important for readers to realize is that buying a business requires hard work and dedication. To succeed, you will need to be sure that the time and effort it takes are worth it in the end.

You should not buy a business if you make it very hard to continue with the training and management process. Not only will this take too long, but it can also be a lot harder than expected.


On a final note, when purchasing a company you need to realize that you are not alone in this journey regardless of what purpose you're doing so for. You must form relationships with professional brokers, accountants, and lawyers that will help you with your business purchase. 

There are still certain companies that can function without these professionals, but these businesses are, for the most part, rare. Whether you prefer working alone or having some assistance, having these professionals on the payroll will be more than beneficial in the long run.