Don’t get stuck on what to do after finding a business you want to buy. The most important step to take is creation of a new corporation. You don’t want to own the liabilities of the past owner.
Be sure that you’re buying only assets. This includes all equipment of the business you’re acquiring plus the intangibles. The benefit of acquiring an existing business is that you obtain an established name and reputation. But you can start your own corporation that acquires the business name of the seller.
You can incorporate a name within your state, such as My Enterprises, Inc. But this entity is permitted to operate under the trade name of the business you want to buy. It’s a simple matter of some legal paperwork.
Then, you can use the known business name for advertising and signs. That’s all part of buying assets. You certainly don’t want any of the liabilities of the prior business owner. This is especially true if the seller is a corporation or LLC. Create your own new corporation or LLC to execute the purchase.
There are several reasons for taking this step. First, by forming a new corporation, you establish your own tax basis in the assets. This is represented by your cost to acquire everything. You don’t want to take over the seller’s basis. You’ll enjoy tax benefits by having your own basis.
Secondly, you don’t want an obligation to pay people that the seller owes. And you especially don’t want to assume any liability relating to someone who could sue the existing business. By starting your own corporation, you avoid these problems. The seller retains any of these liabilities or potential liabilities.
About the only obligation of the seller you should absorb is future payment obligation for the lease of business premises. You may also take over payments for a yellow page ad or similar recurring advertising that benefits your ongoing operations. Obtain an indemnification from the seller for having to pay anything else he incurred in running the business. You want your new corporation to take over as the successor of operations, but not liabilities.
Be sure to determine the status of the seller’s payroll taxes and sales taxes. Some state authorities can come after the business assets to satisfy a delinquent tax debt incurred by the seller when he owned the assets.