How to Purchase an LLC: Everything You Need to Know
How to purchase an LLC is one question that many business owners have. 3 min read
2. How to Buy an LLC
Updated July 1, 2020:
What Is an LLC?
How to purchase an LLC is one question that many business owners have. A limited liability company (LLC) refers to a business structure that passes both losses and profits to the tax returns of the individual members but limits personal liabilities.
For the articles of organization of an LLC, the buyout provisions are listed. The purpose of the buyout provisions is to outline the circumstances in which a partner is able to sell shares as well as to whom.
There are some LLCs that only allow members to sell shares to other members or to the limited liability company itself. The purpose of such buyout provisions is to make ownership of shares impossible to outside buyers.
Unsurprisingly, many entrepreneurs find it daunting to start an LLC from scratch. An alternative that they have is buying a limited liability company that already exists.
There are two different ways you can buy an LLC. The first option is forming a new LLC and buying the assets of an LLC that already exists. The second option is buying the entire LLC. This option is referred to as a bulk purchase.
How to Buy an LLC
If you want to buy an LLC, the first step in the process is finding one that is for sale. While this may sound like an easy task, many entrepreneurs struggle with this step. After all, business owners who want to sell their LLC probably aren't going to be advertising on Craigslist.
One good strategy for finding LLCs for sale include networking within a trade group in the industry you would like to be in. Another strategy is networking within a local chamber of commerce.
Other sources that you can use to look for LLCs for sale are business newspapers and trade publications. You can also connect with older business owners who may be interested in retiring.
Once you find an LLC for sale, be sure to read the clauses in the articles of organization when it comes to buyouts. These clauses establish the circumstances in which the position of a member can be bought out. Commonly cited circumstances include divorce, death, and bankruptcy.
When deciding whether to buy an LLC, you need to ask the current owner of the business to provide you with access to the books and records of the business. You need to have access to anything related to the operation or finances of the business. These things can include:
- Tax returns
- Employment agreements
- Business licenses
- The LLC operating agreement
- Vendor agreements
- LLC articles of organization
- Accounting books
You want to get a good understanding of the assets, debts, revenues, and expenses of the business. Take a look at whether the profits of the business have been going down or up, and try to pinpoint reasons behind any trends you notice. Figure out whether there are leases, mortgages, and loans. Learn what the terms are and whether you have the ability to take them over. Figure out whether the operating agreement of the LLC restricts sale.
To cover all your bases, you're likely going to need to review complex documents. As you can probably imagine, legal documents tend to be long and difficult to comprehend. However, you need to understand the content of these legal documents if you want to make a good decision when it comes to purchasing an LLC. Therefore, you should consider hiring an attorney to help you review these complex documents.
You can hire a CPA to figure out a fair market value of the limited liability company as well as the value of the percentage of ownership of the members.
Get in contact with the members or manager. You can also get in contact with the registered agent. With the help of your attorney, you can start negotiations.
In the beginning, the goal isn't to end up with a firm deal. Rather, you want to start a conversation so that you can learn as much about the business as possible before you make a decision to buy. While learning more about the business, you can negotiate with the business's owner. This process should help you decide whether to buy the entire LLC or just the assets.
If you need help with how to purchase 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 like Google, Menlo Ventures, and Airbnb.