Buying a Business? What to Check Before You Sign

Buying a business can be exciting, but it can also mean buying someone else’s problems. Before signing a purchase agreement, buyers should review the deal structure, financial records, contracts, employees, taxes, debts, liens, leases, intellectual property, customer concentration, licenses, and successor-liability risks.

Buying an existing business can be a major opportunity. Instead of starting from scratch, you may be acquiring customers, revenue, equipment,

employees, contracts, systems, goodwill, and a brand that already has market presence.

But buying a business can also mean buying risk.

A business may look profitable on paper while hiding unpaid taxes, weak contracts, customer concentration, employee issues, lease problems, debt, liens, lawsuits, licensing gaps, intellectual property disputes, or overstated revenue. The purchase agreement matters, but due diligence matters just as much.

At Accord & Shield Legal, we have seen how important it is to have an attorney on your side before signing a letter of intent, asset purchase agreement, stock purchase agreement, membership interest purchase agreement, or seller-financed deal. Once the deal is signed — and especially once it closes — your leverage may be much weaker.

The goal is not just to buy the business. The goal is to understand what you are buying, what you are not buying, what liabilities may follow, and what protections should be built into the deal.

Start With the Deal Structure

The structure of the transaction affects almost everything.

Common structures include:

• Asset purchase
• Stock purchase
• Membership interest purchase
• Merger
• Franchise transaction
• Seller-financed acquisition
• Business opportunity arrangement

In an asset purchase, the buyer usually purchases selected assets and assumes selected liabilities. In an equity purchase, the buyer typically acquires ownership of the entity itself, which may include all assets and liabilities unless addressed otherwise. Each structure has different legal, tax, contract, consent, and liability implications.

The IRS explains that business structure affects tax treatment and identifies common structures including sole proprietorships, partnerships, corporations, S corporations, and LLCs. See the IRS guidance on business structures and business taxes .

Before signing, buyers should understand what structure is being used and why.

The choice between the two is significant enough to deserve its own analysis — our guide on asset purchase versus stock purchase walks through how each structure allocates risk.

Do Not Skip Due Diligence

Due diligence is the process of verifying the seller’s claims before you commit to the deal.

A seller may say the business is profitable, clean, compliant, and transferable. Due diligence tests whether that is true.

A strong due-diligence review may include:

• Financial due diligence
• Legal due diligence
• Tax due diligence
• Contract review
• Employee and contractor review
• Lease and real estate review
• Intellectual property review
• Debt and lien searches
• Litigation and claims review
• Customer and vendor review
• Insurance review
• Regulatory and licensing review
• Technology and data review

Due diligence is not a formality. It can reveal deal-breakers, justify a price reduction, create closing conditions, support indemnity claims, or change the structure of the transaction.

Technology acquisitions carry their own diligence issues — see our technology M&A due diligence checklist for what changes when software and IP are the primary assets.

Review the Financials Carefully

Financial records should be reviewed with an accountant or financial advisor, but legal counsel should understand the business implications.

Buyers should request and review:

• Profit and loss statements
• Balance sheets
• Tax returns
• Bank statements
• Accounts receivable aging
• Accounts payable aging
• Debt schedules
• Payroll records

• Sales reports
• Customer revenue reports
• Inventory records
• Owner add-backs
• Seller discretionary earnings
• Cash flow history
• Financial projections

Watch for revenue that is not recurring, expenses that are understated, personal expenses run through the business, inflated add-backs, old receivables, shrinking margins, unpaid taxes, or customer concentration.

Know Exactly What Assets You Are Buying

The purchase agreement should clearly identify what is included and excluded.

Assets may include:

• Equipment
• Inventory
• Vehicles
• Furniture and fixtures
• Customer lists
• Contracts
• Accounts receivable
• Phone numbers
• Websites
• Domain names
• Social media accounts
• Intellectual property
• Trade names
• Licenses or permits, if transferable
• Goodwill
• Books and records

Do not assume something is included just because it seems related to the business. If it matters, list it clearly.

Identify Debts, Liens, and Liabilities

A buyer should understand what debts and liabilities exist before closing.

Review:

• Loans
• Lines of credit
• Equipment financing
• Tax liabilities
• Vendor balances
• Customer deposits

• Gift cards or prepaid services
• Lawsuits
• Warranty claims
• Employee wage claims
• Lease obligations
• Environmental issues
• UCC liens or security interests
• Personal guarantees
• Unpaid contractors
• Regulatory fines

Even in an asset purchase, liability questions can be complicated. Buyers should confirm which liabilities are assumed, which are excluded, and what indemnity protection exists if undisclosed liabilities appear later.

Where diligence surfaces risk that cannot be eliminated, indemnification provisions become the mechanism for allocating it between buyer and seller.

Understand Successor Liability

Many buyers assume that buying assets means they cannot inherit the seller’s liabilities. That is not always true.

Successor liability rules vary by jurisdiction and claim type. Courts may consider doctrines such as express or implied assumption of liabilities, de facto merger, mere continuation, fraud, or statutory successor liability. Certain employment, tax, environmental, product, or regulatory claims may raise special issues.

Federal courts have addressed successor-liability theories in business acquisition contexts. For example, Cargo Partner AG v. Albatrans Inc., 207 F. Supp. 2d 86 (S.D.N.Y. 2002) discussed de facto merger and mere- continuation concepts. U.S. v. General Battery Corp., 423 F.3d 294 (3d Cir. 2005) addressed successor-liability issues in an environmental-liability context. Battino v. Cornelia Fifth Ave., LLC, 861 F. Supp. 2d 392 (S.D.N.Y. 2012) considered successor liability under the FLSA after an asset purchase.

The practical point: deal structure matters, but it does not replace legal due diligence.

Review Contracts and Required Consents

A business may depend on contracts that cannot be freely transferred.

Review contracts with:

• Customers
• Vendors
• Landlords
• Lenders
• Employees
• Independent contractors
• Franchisors
• Distributors

• Software providers
• Marketing agencies
• Suppliers
• Strategic partners

Check whether contracts require consent to assignment, contain change-of- control restrictions, include termination rights, impose non-competes or exclusivity, restrict pricing changes, or create long-term obligations.

A buyer should not assume that important contracts automatically transfer at closing.

The seller’s representations and warranties are where many of these confirmations get documented and backed.

Review the Lease or Real Estate

If the business depends on a physical location, the lease may be one of the most important assets.

Review:

• Remaining term
• Renewal options
• Assignment rights
• Landlord consent requirements
• Rent escalations
• Common area charges
• Personal guarantees
• Use restrictions
• Maintenance obligations
• Default history
• Security deposits
• Improvements
• Signage rights
• Exclusivity provisions

If the lease cannot be assigned or renewed on acceptable terms, the value of the business may be very different.

Review Employees and Contractors

People often drive the value of a business. Buyers should understand who performs the work, whether key people will stay, and whether there are hidden employment issues.

Review:

• Employee list
• Compensation and benefits
• Payroll records
• Independent contractor relationships
• Worker classification risk
• Non-compete and non-solicitation agreements

• Confidentiality agreements
• IP assignment agreements
• Wage-and-hour compliance
• Accrued vacation or PTO
• Immigration/I-9 compliance
• Key-person dependencies
• Pending or threatened employment claims

If key employees, managers, contractors, or salespeople leave after closing, the buyer may not be buying the business they thought they were buying.

Review Intellectual Property and Brand Assets

If the business relies on a name, logo, website, software, content, customer data, formula, process, or trade secret, IP due diligence is critical.

Review:

• Trademarks
• Copyrights
• Patents
• Trade secrets
• Domain names
• Social media accounts
• Website ownership
• Software ownership
• Licenses
• Contractor-created work
• Open-source software issues
• Confidentiality agreements
• IP assignments
• Brand disputes
• Customer data rights

Do not assume the seller owns everything used in the business. A contractor, developer, agency, founder, employee, or third-party licensor may have rights that limit what the buyer receives.

Check Licenses, Permits, and Compliance

Some businesses cannot operate legally without licenses, permits, registrations, or approvals.

Review whether the business needs:

• Professional licenses
• Health permits
• Alcohol licenses
• Sales tax permits
• Zoning approvals
• Franchise registrations

• Industry-specific approvals
• Data privacy compliance
• Environmental permits
• Employment law compliance
• Insurance certificates

Also confirm whether licenses are transferable. Some licenses may require a new application or agency approval after closing.

Understand Financing Before You Sign

Buyers often finance acquisitions through cash, bank loans, SBA loans, seller financing, earnouts, investor capital, or a combination.

The SBA’s 7(a) loan program is its primary business loan program and may be available for certain acquisition-related financing needs. See the SBA’s 7(a) loans page.

Before signing, review:

• Loan conditions
• Personal guarantees
• Collateral
• Down payment requirements
• Seller financing terms
• Interest rate
• Maturity date
• Default provisions
• Subordination agreements
• Earnout formulas
• Security interests
• Closing conditions

Financing terms can affect personal risk. A buyer may form an LLC or corporation but still personally guarantee acquisition debt.

Watch for Business Opportunity Rules

Some transactions are not traditional business acquisitions. They may be marketed as business opportunities, work-from-home arrangements, vending routes, coaching systems, or similar commercial opportunities.

The FTC’s Business Opportunity Rule applies to certain arrangements where a seller solicits a buyer to enter a new business and requires payment. The rule generally requires a one-page disclosure document at least seven days before the buyer signs or pays. See the FTC’s Business Opportunity Rule .

If the deal is being sold as a turnkey opportunity or income-generating system, get legal review before signing or paying.

Important Documents in a Business Purchase

A business acquisition may involve several documents, including:

• Letter of intent
• Confidentiality agreement
• Asset purchase agreement
• Stock purchase agreement
• Membership interest purchase agreement
• Bill of sale
• Assignment and assumption agreement
• Lease assignment
• IP assignment
• Non-compete or non-solicitation agreement, where enforceable
• Transition services agreement
• Consulting agreement with the seller
• Seller note
• Security agreement
• Escrow agreement
• Closing certificate
• Disclosure schedules
• Corporate approvals
• Third-party consents

Each document should match the deal structure and business realities.

Legal Framework: Buying a Business

Buying a business can involve several overlapping legal frameworks.

Contract Law

The purchase agreement defines what is being bought, what liabilities are assumed, what representations are made, what happens if facts are wrong, and what remedies are available.

Corporate and Entity Law

The buyer and seller entity structure affects authority, approvals, ownership transfer, governance, and closing deliverables.

Tax Law

Tax treatment can affect price allocation, depreciation, payroll obligations, sales tax, income tax, and post-closing structure. Buyers should coordinate legal and tax advice early.

Employment Law

Employee transitions, contractor classification, wage claims, benefits, and key-person retention may affect value and liability.

Intellectual Property Law

The buyer must confirm that the seller owns or can transfer the IP used in the business.

Financing and Secured Transactions

Loans, collateral, liens, security interests, and personal guarantees may affect both the acquisition and the buyer’s personal risk.

Successor Liability

Even when a buyer does not intend to assume all liabilities, certain claims may follow depending on the structure, facts, jurisdiction, and type of liability.

How Accord & Shield Legal Can Help

Accord & Shield Legal helps entrepreneurs, startups, investors, and small business owners evaluate and structure business purchases before problems become expensive.

We can help with:

• Reviewing letters of intent
• Drafting and negotiating asset purchase agreements
• Drafting and negotiating equity purchase agreements
• Structuring the deal to reduce avoidable risk
• Reviewing due-diligence materials
• Identifying contract, lease, employee, tax, IP, and liability issues
• Preparing disclosure schedules
• Drafting indemnity and escrow protections
• Reviewing seller-financing terms
• Coordinating with accountants, lenders, brokers, and advisors
• Helping buyers understand what they are actually buying

At Accord & Shield Legal, we have seen buyers get excited about a deal and move too quickly. The seller may seem trustworthy, the business may look profitable, and the opportunity may feel urgent. But if the documents are weak or diligence is rushed, the buyer may inherit problems they did not price into the deal.

Having an attorney on your side before signing can help protect your money, your leverage, and your future business.

Red Flags Before Buying a Business

Consider getting legal help immediately if:

• The seller is pressuring you to sign quickly
• Financial records are incomplete or inconsistent
• The seller refuses to provide tax returns
• Revenue depends on one or two customers
• Key employees may leave after closing
• The lease cannot be assigned
• Important contracts require consent
• The seller does not clearly own the IP
• There are unpaid taxes, debts, liens, or lawsuits
• The purchase agreement has weak representations
• There is no indemnity or escrow protection
• The deal includes seller financing or an earnout
• You are asked to personally guarantee acquisition debt
• Licenses or permits may not transfer
• The business is being sold as a “turnkey” opportunity with income claims

Final Thoughts

Buying a business can be a smart move, but the risk is in the details. A buyer should know what assets are included, what liabilities are excluded, what contracts transfer, whether employees and customers will stay, whether the seller owns the IP, and whether the purchase agreement provides meaningful protection.

The best time to identify problems is before you sign — not after closing.

If you are considering buying a business, Accord & Shield Legal can help you review the deal, structure the transaction, and protect your interests before you commit.

This article is provided by Accord & Shield Legal for general informational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for advice from a qualified attorney who understands your specific facts, deal structure, documents, financing, tax circumstances, industry, jurisdiction, and business goals. Business acquisition risks vary by transaction and may involve contract, corporate, tax, employment, intellectual property, financing, regulatory, and successor-liability issues. Tax, accounting, financing, valuation, and insurance issues should be reviewed with qualified professionals. Do not send confidential or privileged information unless and until an attorney-client relationship has been formally established in writing. Prior results do not guarantee a similar outcome.