When you buy a business you may (or may not) receive the following assets: client lists, accounts receivable, trademarks, patents, trade secrets, copyrights, a corporation, right to assume a lease, inventory, etc. etc. You may also receive the liabilities of that business (accounts payable, other debts, liability to a lawsuit, employment contracts, etc.) some of which would be very hard to find out about unless you were given unlimited access to the business records. Has the business been paying workman’s comp and unemployment insurance? Failure to do so in CA can give rise to criminal liability.
Make a list of what you believe you are receiving. If it’s accounts receivable, get an accountant to look at the books. If it is a corporation – get an attorney who specializes in corporate law to let you know whether the corporation is in good shape (taxes paid, filings done, etc.). Same with IP (this is a big issue for a tech company) – everyone says they have something that is “proprietary” but few can tell you what they actually think that means. Make sure you can assume the lease – whatever. Then, think about all the possible liabilities. You need to know why someone is selling – and they often aren’t going to tell you.
Often, you aren’t really getting much. And if you find out that the seller wasn’t up front, your only recourse is likely to be litigation. If the owner has moved to Montana that’s going to be expensive. I agree with an earlier post – why not start from scratch?
If you do decide to buy the business be sure to work with an attorney. S/he will probably tell you to include in the contract of sale a very detailed and lengthy list of what you are getting and have the seller warrant that s/he has an unencumbered right to transfer those assets to you. Your attorney will probably recommend that have seller makes a lengthy list of any and all possible claims that might be brought against him/her or that have been threatened. (Not legal advice by the way.)
