Before purchasing a business entity, there are dome due diligences to do. Perhaps, the most important is to retain the services of a qualified attorney, but this check list will help you understand the process and to make the right questions:

Checklist to Purchase a Business Entity

1. Certificate from the selling corporation’s home state and all states in which it does business that it is in good standing

2. Representations and warranties from the selling corporation that:

  • selling corporation has full authority to operate and sell business;
  • sale of the assets does not constitute a breach of the selling corporation’s articles of incorporation and bylaws;
  • no consent or approval is required from any governmental agency or other third party;
  • any and all real estate holdings, including leases, used in connection with the business or necessary for the business’ operation are part of the sale;
  • selling corporation owns all rights title and interest to both the personal property and the real estate being transferred as part of the sale without any liens, encumbrances, or defects of title;
  • any inventory being transferred is free of material defects in workmanship and is fit for its intended use;
  • selling corporation owes no back-pay or other unpaid or unfunded salaries, bonuses, unpaid employee expenses, benefit plans, or other employee compensation;
  • any and all union contracts or other labor agreements are listed in exhibits attached to the contract;
  • all current and outstanding contracts, obligations, promises, etc. of the selling corporation that the buyer is assuming (i) have been disclosed to the buyer; (ii) there are no defaults of any of these agreements; and (iii) are fully set out in their entirety;
  • All insurance contracts covering the business are attached as exhibits to the contract;
  • there are no permits required for the operation of the business that are not currently held by the business;
  • there are no lawsuits pending or threatened, and if there are, then the all of the documents relating to the lawsuits (except privileged documents) are attached as an exhibit. Make sure no the buyer assumes no liability for any such lawsuits, or better yet, don’t buy the business;
  • selling corporation has no subsidiary corporations or interests in any other businesses;
  • all bank accounts, safe-deposit boxes, and other banking arrangements of the selling corporation have been disclosed and are described in detail;
  • all purchase orders for goods by selling corporation and all other commitments to purchase goods by selling corporation are listed in an exhibit attached to the contract, and none of these orders are in arrears of in default;
  • all unfilled customer purchase orders and all other uncancelled commitments from customers to buy goods from the selling corporation are listed in an attached exhibit, and all money already collected on these orders (advances, earnest money, deposits, etc.) will be turned over to the buyer on the closing date;
  • all property and equipment necessary for the operation of the business/production of goods is included in the assets sold by selling corporation;
  • all intellectual property, including trademarks (applied for or held), trade secrets, inventions, patents (applied for or held), and copyrights are included and listed in an exhibit attached to the contract;
  • all material contracts, agreements or commitments (oral or written) binding or affecting the selling corporation are listed in an exhibit attached to the contract;
  • all material liabilities (besides those found in the balance sheet and the exhibit listing contracts, agreements, and commitments) affecting the selling corporation are listed in an exhibit attached to the contract are listed in an exhibit attached to the contract;

3. Clearance letter from state agencies assuring buyer that all taxes for sales, unemployment insurance, withholding taxes, etc. are fully paid.

4. Personal guaranty of owner of selling corporation that everything in contract is true and that he/she is liable for the fulfillment of the contract as well.