Whether you're considering buying out your business partner or purchasing an existing LLC in a different industry, you may be overwhelmed by the many factors to be considered. How should you set your purchase price? What documents should you review before taking on the business's assets and liabilities? Read on to learn more about the purchase process for limited liability corporations, as well as what you should watch for to avoid problems down the line.
What purchasing strategies are available?
When you purchase an LLC, you have two options. The first is to form a new LLC (with you as sole owner) and use this LLC to purchase any infrastructure, client lists, or other assets from the existing LLC, which will then dissolve.
Your second option is to purchase the individual member interests of each current LLC member. This will effectively transfer ownership of the LLC, along with all assets and liabilities.
The path you choose may depend on your ultimate goal in acquiring the company. If you're looking for a fresh start and a new face for an existing business, you may wish to form a new LLC with a different corporate name and image. If you want to continue what has been a successful run, you may be better off purchasing the membership interests of current LLC members and keeping the business stable.
What should you investigate before finalizing your purchase?
- Asset and liability reports
Even if you're merely buying out a partner, rather than investing in a new business, you'll want to ensure that the books are up-to-date and accurate. Your attorney may want to have a forensic accountant look over the company's internal and public filings and ensure that there are no questionable revenue streams or other factors that could concern the IRS.
You'll also want to ensure that you are informed about how to access these reports at any time -- the last thing you want is to find yourself unable to gain crucial information about your own company, particularly if you are audited.
- Look out for liens
Your attorney will be able to conduct a search for any liens or judgments that have attached to company property, as well as investigate pending claims against the company. Although you should be able to defend against claims against the former owners of your business, you don't want to be blindsided by a lawsuit after the purchase monies have changed hands.
Speak to experts like Caldwell Kennedy & Porter for more information.