Six legal checks before you buy an existing business
Review ownership, contracts, employees, liabilities, permits and intellectual property before you sign anything binding.
Before you commit to buying a business, confirm six things: who owns it, which contracts transfer, how employees are classified, what liabilities exist, which permits apply and whether the brand and other intellectual property come with the sale.
Diligence protects the price you agreed to
A letter of intent sets the headline terms. Diligence confirms the business is what it appears to be, and it gives you the facts you need to adjust the price or the protections in the purchase agreement.
Sellers expect these questions. A clear, organized request list usually speeds up the process rather than slowing it down.
The six checks
| Check | What to request |
|---|---|
| Ownership | Formation records, cap table, prior transfers |
| Contracts | Customer, supplier and lease agreements |
| Employees | Classifications, agreements, benefit plans |
| Liabilities | Debts, liens, pending or threatened claims |
| Permits | Licenses tied to the business or location |
| Brand and IP assets | Trademarks, domains, software ownership |
Asset purchase or stock purchase
In an asset purchase you choose which assets and liabilities to take on. In a stock purchase you acquire the company as it stands. The structure affects taxes, contracts and risk, so decide it with your accountant early.
- Asset purchases allow more selective risk.
- Stock purchases can keep contracts and permits in place.
- Tax effects differ for buyer and seller in each structure.
Protections in the purchase agreement
Representations, indemnities and holdbacks turn what you learned in diligence into enforceable promises. The findings from each check should map to at least one of those protections.
- Sign a confidentiality agreement and send the request list.
- Review findings with your attorney and accountant.
- Negotiate price, structure and protections before signing.
Diligence is not about distrust. It is how both sides agree on what is actually being sold.
Common questions
For a small or mid-sized business, several weeks is common. Complex contracts or real estate can extend the timeline.
Most letters of intent are largely non-binding, but confidentiality and exclusivity terms often are. Read those sections closely.
Wrapping up
A careful review before signing is the strongest protection a buyer has. If you are evaluating a purchase, schedule a consultation and bring the letter of intent.
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