How to Buy an LLC: Everything You Need to Know
How to buy an LLC involves determining the financial and legal status of the business, among other steps.3 min read
How to buy an LLC involves determining the financial and legal status of the business, among other steps. You will also need a written agreement that each member of the company signs.
Finding an LLC Business to Buy
This step may require extensive research. Several places to start include:
- Your local chamber of commerce.
- Trade groups for the industry you would like to invest in.
- Trade publications.
- Business newspapers.
- You may also reach out to business owners who are considering retiring.
Once an LLC is found, begin negotiations with the person authorized to do so on behalf of the business.
Limited liability companies have a person designated to handle official business. This person is the company's registered agent. You may contact the manager or members directly, though the registered agent can streamline the process.
The purpose of any conversation, at this point, is to collect information about the business to determine if it is a good investment. You are just making contact; you are not yet ready to strike a deal. There are several areas to cover prior to the purchase of an LLC.
Books and Records
You will want access to the company's books and records. Ask the owner for this information.
Articles of Organization
Read the articles of organization for the LLC. When negotiating, you will want to establish the circumstances when this is applicable, such as divorce, death, or bankruptcy.
The LLC's buy-sell agreement should specify the requirements to buy shares. When no provision is in place, an LLC can be subject to the laws of the states. An LLC is not required to offer shares to the general public.
While you need to look at the accounting books and ledgers, mortgages, outstanding loans, vendor agreements, and business licenses, the owner may require a financial statement from you.
This shows that you are in a position to buy the business. The owner may also request that you sign a confidentiality agreement prohibiting any disclosure about the business to anyone other than an attorney or financial advisor. In regard to leases, loans, and mortgages, you will need to know what the terms are and whether you should take them over.
If the LLC has an operating agreement, you will want to read through it as well. You will be looking for anything in the operating agreement that restricts the sale of the LLC. You will also need to do a search of public records, liens, and property tax obligations. The goal of looking through the books is to have an understanding of the assets and debts of the LLC, whether profits have been going up or down, and why.
Buying a limited liability company involves many documents, and some are complex. For this reason, an attorney should be consulted. A lawyer will review the operating agreement as well as any other leases or contracts, check for liens and judgments, and look for pending lawsuits. Your attorney will also review accounting records and finances to make sure everything is in order and to confirm that you are not purchasing a business with problems.
Hire a certified public accountant to determine the LLC's fair market value along with the value of the member's percentage of ownership.
Overview of Buying an LLC
To acquire an ongoing business set up as a limited liability company, you will most likely need to buy the business entity versus just buying the assets of the business. You may also require that any financial responsibilities/liabilities held by the LLC that are not listed in the purchase agreement be assumed by the LLC's members. You would want this written into the purchase agreement contract.
It is recommended to get a written agreement to the sale of the LLC from its creditors. This acknowledges their willingness to continue the relationship of debtor/creditor with the new terms. If a creditor does not agree to the terms of the sale, it is possible that they will call in their line of credit or cancel any ongoing purchase agreements in place with the original contract.
While you and your lawyer are conducting due diligence, negotiations can continue. Things to consider include:
- Whether to purchase the LLC as a whole or just its assets.
- What the purchase will and will not include and the terms.
- What should be included.
- If the terms are reasonable.
If you need help with how to buy an LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies Google, Menlo Ventures, and Airbnb.