Key Takeaways:

  • Purchasing an LLC involves acquiring either its assets or the entire entity.
  • Essential steps include finding an LLC for sale, conducting due diligence, negotiating, and finalizing a purchase agreement.
  • Networking and market research are effective methods for identifying LLCs for sale.
  • A term sheet and a binding purchase agreement formalize the terms of sale.
  • Professional assistance from attorneys and CPAs ensures thorough evaluation and smooth transactions.

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.

Benefits of Buying an Existing LLC

  • Immediate Operations: Acquiring an existing LLC can allow you to start operations immediately, avoiding the time required to establish a new business.
  • Established Reputation: An LLC with an established client base and proven revenue streams offers a less risky investment.
  • Pre-Established Assets and Contracts: Includes physical assets, vendor agreements, and intellectual property that could take years to build.
  • Ease of Financing: Lenders are often more willing to finance the purchase of a business with a track record than a startup.

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:

  • Ledgers
  • Loans
  • Tax returns
  • Leases
  • Employment agreements
  • Business licenses
  • The LLC operating agreement
  • Vendor agreements
  • LLC articles of organization
  • Mortgages
  • 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.

Critical Steps in Negotiating an LLC Purchase

  1. Draft a Term Sheet: This non-binding document outlines proposed terms, including purchase price, assets to be acquired, and timeline.
  2. Engage in Transparent Discussions: During negotiations, focus on clarifying legal, financial, and operational aspects with the seller.
  3. Conduct Risk Assessment: Ensure no hidden liabilities or disputes exist, such as lawsuits, unresolved debts, or tax issues.
  4. Address Licensing and Compliance: Confirm that licenses and permits can be transferred or reissued under your ownership.

Key Documents Needed for the Purchase

  • Business Plan: Understanding the LLC’s business plan reveals its strategy and goals.
  • Inventory and Valuation Reports: Lists of assets and their current market value.
  • Staffing Information: Current employee contracts and payroll data.
  • Compliance Certificates: Proof of adherence to local, state, and federal regulations.

Finalizing the Purchase

  • Draft a Purchase Agreement: Ensure the document includes price, terms, and contingencies for deal closure.
  • Transfer Membership Interests: Complete all necessary paperwork to officially transfer ownership.
  • File with the State: Submit required forms to state agencies to update the LLC’s membership.
  • Post-Purchase Integration: Establish a plan to integrate the LLC into your broader business operations.

FAQ Section:

  1. What is the difference between buying an LLC and its assets? Buying an LLC includes its liabilities and contracts, while purchasing its assets allows you to choose which parts of the business to acquire.
  2. What should I consider during due diligence? Review financial records, legal obligations, operational contracts, and potential liabilities to ensure a sound investment.
  3. How do I value an LLC before purchase? Hire a CPA to evaluate the LLC’s financial statements, assets, and market position for a fair market valuation.
  4. What are common contingencies in a purchase agreement? Contingencies often include successful due diligence, financing approval, and required regulatory approvals.
  5. Do I need an attorney to buy an LLC? Yes, an attorney ensures compliance with legal requirements, reviews contracts, and protects your interests during the transaction.

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.