Let’s say you’re a business-minded entrepreneur, but you’re not interested in starting your own business so much as you’re interested in buying an existing one. If that sounds like you, you might be wondering how to buy an LLC.
Buying an LLC can be a challenge, but not an insurmountable one. After you do your research, learn everything you can about the company, consider your finances and review the written purchase agreements, you’re off to the races. But before we jump into how to buy an LLC, let’s answer another question you might be asking yourself: “What should I know before buying an LLC?”
What is an LLC?
An LLC is a business structure that classifies your business as separate from you individually. It gives you the freedom to run your business in a more professional manner than a sole proprietorship does.
What are the Benefits of Operating an LLC?
An LLC protects your personal assets (like your home and personal bank accounts) from business lawsuits and debt, offers flexible tax options that allow you to avoid double taxation, and gives you the ability to open business bank accounts, hire employees, and apply for business licenses and permits. But speaking of taxes…
What are the Specific Tax Advantages of an LLC?
This is one of many reasons why people love to have an LLC. LLCs allow business owners to pass profits and losses through to their personal federal tax returns, instead of first paying corporate taxes on the profits and then paying separate personal taxes based on the owner’s earnings. LLCs can also elect corporate taxation by filing IRS Form 8832 to take advantage of lower tax rates and other tax strategies.
Now that you have the basics down, let’s explore how to buy an LLC:
Step 1: Do Your Business Research
It probably goes without saying that you need to find an LLC that you want to buy—and this may take a little legwork, as not every business owner broadcasts their intentions to sell. You can ask around to family and friends if they know someone with a company that gels with your interests, visit conferences and trade shows to do a little networking, explore opportunities at the chamber of commerce, or even do some online sleuthing. Cast your net wide and see what comes back!
Step 2: Discuss and Explore the Opportunity
So you’ve found the LLC you want to buy. Congratulations! Now’s the time to negotiate with the business owner, or someone who has full permission to negotiate in place of the business owner. This is the time to learn everything you want to know about the business—including any issues, getting a look at their books, and more to help you make an informed purchasing decision. Similarly, the owner will want to get some information on you, too, like proof that you’re able to make the financial commitment to purchase. They may also want you to agree to an NDA to keep details of the potential purchase between the two of you.
Step 3: Review, Review, Review
Though you took a look at your intended LLC’s books in the last step, now’s the time to do a deep dive on their financial situation. And you’ll want to sift through everything—taxes, banking information including lines of credit and loans, any outside partnerships the company maintains, employee records… anything that could be considered a debt or asset needs your eyes on it. It can be tempting to just want to look at profits and losses, but you need to look at the business’ financial dealings and responsibilities as a whole so you’re not blindsided by something down the road.
Step 4: Submit a Term Sheet
When you feel confident that you’ve decided on the right LLC for you, you can start official negotiations to buy the business and start detailing what the terms of that purchase will look like. It doesn’t have to be too in-depth—that will come later. But it’s a good idea to create a term sheet to solidify your plan to purchase and outline what the seller is willing to commit to, and what you’re willing to commit to as the buyer. That way, everyone is on the same page.
Step 5: Create and Sign the Purchase Agreement
This is the big one! A purchase agreement is the document that solidifies the deal for you to buy the LLC you want. This is a legally binding agreement that details every aspect of the purchase, how much it will cost, the terms of payment, what the seller and buyer are agreeing to, and any other specific details that impact the business changing hands. To make it official, you and the seller have to sign it.
Step 6: Change the Business Ownership Information
Once the I’s are dotted and the T’s are crossed, you’ll need to make sure that your new LLC officially reflects you as its new owner. Every state’s laws differ on the notification of a change of business ownership, so you’ll want to check with your state, the IRS, and any other associated entities to make sure they all know that you’re the new rightful owner and the point of contact for these categories going forward.
Do I Need a Lawyer to Form an LLC?
Having an experienced business lawyer help you set up your LLC makes the process much faster and less stressful. Plus, having a lawyer on your side will give you piece of mind, knowing your LLC was set up correctly and legally.
If you’re thinking buying an LLC, let LegalShield help you with the process—and make it easier for you so you can focus on your new business. LegalShield can take you through all the steps of buying an LLC and gives you additional legal support afterward for all of the other questions that will inevitably arise. Sign up today!
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