Buying or Selling a Business: What to Know Before You Sign
By Nadine Deeb, Esq. · Published June 9, 2026 · Updated July 15, 2026
Buying or selling a business is exciting, emotional, and a little like standing in front of a vending machine that costs seven figures. For buyers, the dream is simple: acquire a company, grow revenue, keep the good customers, and not discover three months later that the “proprietary software” is a single overworked spreadsheet. For sellers, the goal is equally clear: get paid, close cleanly, protect the legacy, and never receive a lawyer letter that begins with “as you are aware.”
Quick answer: a business sale is a risk-transfer machine, and five questions decide who bears the risk. Asset or equity? The structure drives tax, liability, and consents. What am I actually buying or selling? Diligence answers that. How is the price allocated? Tax allocation moves real dollars. What happens to employees, IP, and liabilities? None of them transfer by magic. What survives closing? The purchase agreement decides. Get those wrong and a “simple deal” becomes an expensive escape room.
Whether you are acquiring a competitor, selling the company you built, taking on investors, or preparing for an eventual exit, the legal structure matters, the documents matter, and the liabilities you do not see yet absolutely matter. A business sale is not a handshake with better stationery. If the machine is built poorly, it transfers risk to exactly the wrong person.
1. Start With the Big Question: Asset Deal or Equity Deal?
One of the first legal questions in any business sale is whether the buyer is purchasing assets or equity. In an asset purchase, the buyer typically buys selected assets and assumes selected liabilities — equipment, inventory, contracts, customer lists, intellectual property, goodwill, domain names, permits, leases, and receivables. Asset deals give buyers more control over what they take and what they leave behind, but they can require third-party consents, contract assignments, tax allocation, lien releases, and detailed schedules.
In an equity purchase, the buyer acquires ownership interests — stock, membership interests, or partnership interests. The entity usually stays the same, which can simplify contract continuity, but it may also mean the buyer inherits the company’s history: liabilities, disputes, tax issues, employment claims, compliance problems, and the skeletons apparently stored in QuickBooks.
The FTC’s premerger notification guidance explains that federal merger review can apply to certain acquisitions of voting securities, assets, and non-corporate interests depending on the transaction and the thresholds involved. For larger deals, structure is not just a tax and liability issue — it can also determine whether antitrust filing obligations apply under the Hart-Scott-Rodino framework.
Legal take: Do not choose asset vs. equity based on a template, a handshake, or what your cousin’s gym franchise did in 2016. The structure should match the tax plan, liability profile, contracts, permits, employees, financing, and commercial goals of the deal.
2. Due Diligence Is Where the Deal Tells the Truth
Due diligence is the part of the transaction where everyone stops admiring the purchase price and starts asking inconvenient questions. The U.S. Small Business Administration’s business-buying guidance encourages buyers to evaluate the business, understand what is included, prepare for diligence, and negotiate the deal. In plain English: do not buy the business until you know what the business actually is.
A buyer’s diligence review should usually cover financial statements and tax returns; customer concentration and recurring revenue; vendor and customer contracts; leases and equipment; employee, contractor, and benefits issues; intellectual property ownership; litigation and threatened claims; debt, liens, and UCC filings; permits and licenses; privacy and cybersecurity practices; insurance history; franchise or reseller restrictions; related-party transactions; and technology and AI-tool dependencies.
A seller should also run reverse diligence before going to market — cleaning up corporate records, contracts, IP assignments, cap tables, employee files, tax filings, and customer agreements before a buyer finds the mess and uses it as a price-reduction piñata.
Legal take: Diligence is not about being difficult. It prevents the buyer from purchasing a lawsuit with a logo, and it prevents the seller from being chased after closing over issues that could have been disclosed, excluded, cured, or priced into the deal.
Thinking about buying or selling? The earlier counsel is involved, the more the structure, diligence plan, and risk allocation can actually work in your favor. We help buyers and sellers across Arizona, California, and Texas set the deal up right.
Book a Free Consultation →3. Tax Allocation Can Change the Economics of the Deal
In many asset purchases, the purchase price must be allocated among classes of assets, and that allocation can affect depreciation, amortization, gain, ordinary income, goodwill, and post-closing tax consequences. The IRS states that both buyer and seller generally use Form 8594 when a group of assets that makes up a trade or business is transferred and the buyer’s basis is determined by the amount paid; the instructions explain that both parties generally file the form with their tax returns and report the allocation among asset classes.
This is why purchase agreements often include an allocation schedule, a covenant to report consistently, and procedures for purchase-price adjustments — and why the tax advisor should be involved before the agreement is signed, not after everyone is celebrating with closing-day cupcakes.
Legal take: Purchase price is not the whole economic story. Tax allocation can shift real value between buyer and seller. Treat the allocation schedule like a business term, not boilerplate.
4. Employees Do Not Magically Transfer Just Because the Deal Closed
When a business changes hands, employee issues get complicated quickly. Will employees be terminated and rehired? Will benefits continue? Are there unpaid wages, commissions, bonuses, PTO, harassment claims, worker-classification problems, noncompetes, nonsolicits, or immigration compliance issues? The EEOC recognizes that a business acquiring another business may, in some circumstances, face successor liability for predecessor discrimination under federal employment laws, depending on the facts. The IRS also notes employment-tax transition issues for successor employers, including circumstances where a successor employer must secure new Forms W-4 from transferred employees unless an alternative procedure applies.
Legal take: Buyers should diligence employee claims, payroll-tax compliance, classification, restrictive covenants, benefits, and immigration documentation. Sellers should clean up employment records before diligence begins. Nobody wants the most memorable part of the closing dinner to be “we forgot about accrued PTO.”
5. Successor Liability: The Ghost in the Deal Room
A buyer may think, “If I buy assets, I do not inherit liabilities.” Sometimes that is directionally true. Sometimes it is dangerously incomplete. Successor liability can arise under statutes, state-law doctrines, tax rules, employment laws, fraudulent-transfer principles, or the facts of the transaction. The IRS Internal Revenue Manual discusses successor and transferee liability concepts, including de facto merger, mere continuation, bulk-sale provisions, and liability for certain tax debts.
The practical concern is that courts and agencies may look beyond labels. If a buyer continues the same business, keeps the same employees, uses the same location, serves the same customers, and leaves creditors unpaid, a “we only bought assets” argument may not be the magical liability shield the buyer hoped it was.
Legal take: Asset deals can reduce risk, but they do not eliminate all successor-liability exposure. Buyers need indemnities, escrows, holdbacks, lien searches, tax-clearance analysis, and careful drafting. Sellers need clear assumed-liability language, release mechanics, payoff procedures, and post-closing protection.
6. Bigger Deals May Trigger HSR Antitrust Filing Requirements
Most small-business sales will not trigger federal premerger notification filings, but larger transactions need to check Hart-Scott-Rodino Act thresholds before closing. The FTC announced that the 2026 size-of-transaction threshold increased to $133.9 million, and the FTC’s current-threshold page lists the updated 2026 thresholds and related size-of-person thresholds. If HSR applies, the parties generally must file and observe the waiting period before closing. Skipping that analysis because “this is just a private deal” is like ignoring a smoke alarm because the kitchen looks classy.
Legal take: Any meaningful acquisition should include an antitrust/HSR threshold check early, especially if the value approaches current reporting thresholds or involves competitors, roll-ups, private equity, healthcare, technology, or concentrated markets.
Is your transaction big enough to need an HSR check? The wrong answer is finding out after closing. We flag antitrust, successor-liability, and structure risk before the letter of intent is signed.
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7. Intellectual Property Must Actually Be Transferred
A business’s value may live in its name, trademarks, software, website, domain names, customer lists, trade secrets, content, and brand reputation — but intellectual property does not transfer just because everyone says “the business” was sold. The purchase agreement should identify what IP is included, who owns it, whether contractors assigned their rights, whether licenses are transferable, whether open-source software creates issues, and whether third-party consents are required.
The USPTO explains that patent and trademark assignments may be recorded through its Assignment Center, and that recordation updates USPTO ownership records but does not itself determine the legality of the transaction. When a business is sold, trademark ownership may need to be transferred by assignment and recorded so the database reflects the current owner.
Legal take: IP transfer should be documented separately and specifically. Do not assume the logo, software, social handles, domain, trade name, content library, or customer database automatically came along for the ride.
8. Beneficial Ownership Reporting May Still Matter in Cross-Border Deals
FinCEN currently states that, under its March 2025 interim final rule, U.S.-formed entities and U.S. persons are exempt from beneficial ownership information reporting, while certain foreign entities registered to do business in the United States remain within the reporting framework. That does not mean deal parties should ignore ownership diligence. Buyers still need to know who owns the seller, who has authority to sign, whether approvals are required, and whether sanctions, anti-money-laundering, or foreign-entity reporting concerns exist.
Legal take: BOI reporting may not apply to ordinary domestic companies under current FinCEN guidance, but ownership, authority, control, and cross-border compliance still belong in diligence.
9. The Purchase Agreement Is Where Risk Gets Assigned
The purchase agreement is not the document that simply says “buyer buys, seller sells.” It is the operating manual for what happens if the deal is not as advertised. A strong business purchase agreement should address purchase price and adjustments; assets included and excluded; liabilities assumed and excluded; representations and warranties; disclosure schedules; indemnification; escrows, holdbacks, baskets, caps, and survival periods; closing conditions; third-party consents; employee transition; tax allocation; enforceable restrictive covenants; confidentiality; transition services; IP assignments; earnouts; dispute resolution; governing law; and post-closing cooperation.
The biggest mistake is treating the purchase agreement like a receipt. It is not a receipt. It is the map of who bears which risks after closing — and if the map is vague, everyone ends up arguing in the swamp.
Buyer Checklist: Questions to Ask Before You Buy
- What exactly am I buying, and what liabilities am I assuming?
- Are the financials reliable, and are key contracts assignable?
- Are customers concentrated in one or two accounts?
- Are employees properly classified and paid?
- Who owns the IP, and are taxes current?
- Are there liens, loans, judgments, or security interests?
- Are licenses and permits transferable?
- Are there pending or threatened claims, or privacy and cybersecurity risks?
- Do I need landlord, lender, franchisor, customer, supplier, or regulatory consent?
Seller Checklist: Questions to Ask Before You Sell
- Are my corporate and ownership records clean and accurate?
- Are customer and vendor contracts organized?
- Do I have signed employee, contractor, confidentiality, and IP-assignment agreements?
- Are financials and tax filings ready for diligence?
- Are leases, licenses, permits, and insurance current?
- Are there unresolved disputes, or liens that must be paid at closing?
- What assets are excluded from the sale?
- What indemnity cap, escrow, holdback, or survival period is acceptable?
- What tax consequences will the structure create?
A Quick Story: The Deal That Looked Easy Until It Wasn’t
Imagine a buyer named Jordan. Jordan finds a great business — good revenue, loyal customers, nice website, seemingly normal seller. Everyone keeps using the phrase “simple deal,” which is usually when the music in a legal thriller gets quiet. Jordan signs a short purchase agreement downloaded from the internet that says Jordan is buying “the business.”
Unfortunately, “the business” did not include the trademark; the domain was owned personally by the seller’s cousin; the customer contracts required consent; the landlord never approved the assignment; two employees had unpaid commission claims; the main software license was non-transferable; and the seller’s representations were about as detailed as a fortune cookie. Jordan did not buy a business. Jordan bought a scavenger hunt with payroll. This is why legal diligence and a properly drafted purchase agreement matter.
How Accord & Shield Legal Helps
Accord & Shield Legal, PLLC helps business owners, founders, buyers, sellers, and investors structure, negotiate, document, and close business purchase and sale transactions. That includes letters of intent and term sheets; asset, stock, and membership-interest purchase agreements; diligence checklists and review; disclosure schedules; escrow and holdback structures; employment and contractor transition; noncompete and nonsolicit review; IP assignments; consent and assignment analysis; lien, debt, and payoff coordination; closing deliverables; and post-closing transition obligations.
The firm’s business-law and M&A work focuses on strategic transactions, contracts, formation, employment, and IP for companies in Arizona, California, and Texas — making business purchases and sales a core fit for the practice.
Final Takeaway
If you are thinking about buying or selling a business, do not wait until the night before closing to involve legal counsel — that is how deals become expensive escape rooms. A well-structured deal protects your money, reduces disputes, clarifies expectations, and helps the transaction close with fewer surprises. Talk to counsel before you sign the letter of intent, agree to the purchase price, hand over diligence documents, or promise terms you may regret later.
Frequently Asked Questions
In an asset purchase, the buyer buys selected assets and assumes selected liabilities, often leaving unwanted liabilities behind but requiring consents, assignments, and detailed schedules. In an equity purchase, the buyer acquires ownership interests and the entity stays the same, which can simplify contract continuity but may pass along the company’s history, including its liabilities. The right structure depends on the tax plan, liabilities, contracts, and goals of the specific deal.
Due diligence is the review process where a buyer verifies what the business actually is before closing — financials and taxes, contracts, customer concentration, employees, IP ownership, litigation, liens, permits, insurance, and technology dependencies. Sellers benefit from running reverse diligence first to fix problems before a buyer finds them and uses them to reduce the price.
In many asset purchases, yes. The IRS generally requires both buyer and seller to use Form 8594 to report the allocation of the purchase price among classes of assets when a group of assets making up a trade or business is transferred. Because allocation affects depreciation, gain, goodwill, and post-closing taxes, the allocation schedule should be negotiated as a business term with a tax advisor involved before signing.
Not automatically. Employee transition depends on the deal structure and must be addressed directly — whether employees are terminated and rehired, whether benefits continue, and how unpaid wages, PTO, commissions, classification issues, and restrictive covenants are handled. Buyers should also diligence potential successor liability for predecessor employment claims and payroll-tax transition issues.
Sometimes. Even in an asset deal, successor liability can arise under statutes, state-law doctrines like de facto merger and mere continuation, tax rules, employment laws, and fraudulent-transfer principles. Courts may look past the “we only bought assets” label if the buyer continues the same business and leaves creditors unpaid. Indemnities, escrows, lien searches, and careful drafting help manage this risk.
Most small-business sales do not, but larger deals must check Hart-Scott-Rodino thresholds before closing. The FTC set the 2026 size-of-transaction threshold at $133.9 million and publishes updated size-of-person thresholds as well. If HSR applies, the parties generally must file and observe a waiting period before closing, so an antitrust check belongs early in any meaningful acquisition.
No. IP must be identified and assigned specifically in the transaction documents. The purchase agreement should confirm what IP is included, who owns it, whether contractors assigned their rights, and whether licenses are transferable. For trademarks and patents, the USPTO allows assignments to be recorded so ownership records reflect the new owner, but recordation does not by itself determine the legality of the transaction.
Before signing a letter of intent or term sheet. Early involvement lets counsel shape the structure, diligence plan, and risk allocation while terms are still negotiable, rather than reacting after key points are locked in. Waiting until the night before closing is how deals become expensive to fix.
This article is provided by Accord & Shield Legal for general informational purposes only. It is not legal, tax, accounting, valuation, or investment advice and does not create an attorney-client relationship with Accord & Shield Legal, PLLC or any of its attorneys. Business purchase and sale transactions are highly fact-specific and depend on the jurisdiction, the documents, the tax consequences, the financing terms, the employment issues, the regulatory obligations, and the deal structure. The Jordan example above is a hypothetical, not a client matter or result. Thresholds, rules, and agency guidance referenced here (including HSR thresholds and FinCEN reporting requirements) change over time and should be confirmed for your transaction. You should consult qualified legal, tax, and financial professionals before signing a letter of intent, purchase agreement, assignment, disclosure schedule, financing document, or closing deliverable. Representation is established only through a written engagement agreement; do not send confidential information unless and until an attorney-client relationship has been formally established. Prior results do not guarantee a similar outcome.