• Find the right business for you • Negotiate the best terms • Close the deal Buying a Business Attorney Fred S. Steingold, author of Legal Guide for Starting & Running a Small Business “For an overview of the purchase process, see The Complete Guide to Buying a Business.” SAN FRANCISCO CHRONICLE 3rd Edition The Complete Guide to Free Legal Updates at Nolo.com  e Nolo Story Dear friends, Founded in 1971, and based in an old clock factory in Berkeley, California, Nolo has always strived to off er clear legal information and solutions. Today we are proud to off er a full range of plain-English law books, legal forms, software and an award-winning website. Everything we publish is relentlessly researched and tested by a dedicated group of in-house legal editors, whotogether have more than 150 years’ experience. And when legal changes occur after publication, we promptly post free updates at Nolo.com. 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Steingold LAW for ALL THIRD EDITION AUGUST 2011 Editor ILONA BRAY Cover Design SUSAN PUTNEY Book Design TERRI HEARSH Proofreading CATHERINE CAPUTO Production MARGARET LIVINGSTON CD-ROM Preparation ELLEN BITTER Index MEDEA MINNICH Printing BANG PRINTING Steingold, Fred.  e complete guide to buying a business / by Fred S. Steingold. — 3rd ed. p. cm. Includes bibliographical references and index. Summary: “Explains complex yet critical legal and practical details on choosing, investigating, and contracting to buy a business.  e new edition includes updated tax laws and regulations.”—Provided by publisher. ISBN-13: 978-1-4133-1267-6 (pbk.) ISBN-10: 1-4133-1267-5 (pbk.) ISBN-13: 978-1-4133-1287-4 (epub e-book) 1. Business enterprises—Purchasing—Law and legislation—United States—Popular works. 2. Small business—Law and legislation—United States—Popular works. I. Title. KF1355.S74 2010 346.73'065—dc22 2010008715 Copyright © 2005, 2007, and 2011 by Nolo. 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If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state. Acknowledgments I wish to thank Ilona Bray for her superb editing of the second and third editions of this book. anks also to: Emily Doskow for skillfully shaping up the first edition of this book Marcia Stewart for building a strong foundation for this book through her skillful editing of e Complete Guide to Selling a Business Jake Warner for his many helpful contributions and unflagging encouragement Mark Hartley, CPA, for his analysis of tax issues Glen J. Cooper for his insights regarding business brokers Terri Hearsh for her production magic André Zivkovich and the Applications Development Department for creating the CD-ROM, and Susan Putney for designing the attractive cover. About the Author Attorney Fred S. Steingold is an expert on business law, advising entrepreneurs on how to start, buy, run, and sell businesses. He is the author of Nolo’s Complete Guide to Selling a Business, Legal Guide for Starting and Running a Small Business, and e Employer’s Legal Handbook. His monthly column, “e Legal Advisor,” is carried by trade publications around the country. Downloading Forms and Other Materials  e printed version of this book comes with a CD-ROM that contains legal forms and other material. You can download that material by going to www.nolo.com/back-of-book/BUYBU3.html. You’ll get editable versions of the forms, which you can fi ll in or modify and then print. Table of Contents I Your Companion for Buying a Business 1 Is is Book for You? 2 Will You Need to Hire Lawyers, Accountants, or Other Professionals? 4 Part 1: Overview of the Process 1 inking About Buying a Business 7 Business-Buying Worries 9 Which Kind of Buyer Are You? 9 ree Ways to Become a Business Owner 11 e Basics of Buying a Business 16 Key Steps in Buying a Business 18 2 e Key Legal Issues in Buying a Business 27 Understand the Differences Between Buying a Business Entity and Buying Just Its Assets 28 Consider Forming a Corporation or LLC to Buy the Business 31 Be Clear on What You’ll Buy and What the Seller Will Keep 32 Pay Special Attention to the Transfer of Intellectual Property 33 Know the Legal Consequences of Not Making Installment Payments on Time 34 Assure at ere Are No Liens on Business Assets 36 Protect Yourself From Competition by the Seller 36 Limit Your Legal Liability for Past Obligations of the Business 37 Comply With State and Local Laws at May Affect Your Purchase 40 [...]... looking to expand ­ a business may be in the market for the same kind of business they’re ­ lready in There are a enormous advantages to this, the biggest one being that the buyer already knows a great deal about the business and can value it appropriately at purchase and operate it more easily after the purchase is complete Example: Emma owns a delivery service that primarily serves the east side of town... had an ideal location under a long-term lease that he could take over Buying a Business as a Strategic Move Some people who buy a business are already in business and want to expand their current enterprise—both to increase their business and possibly to dominate a local market Such people are often called strategic buyers because they’re carrying out a larger business strategy Some of those who are... several years If so, you can continue operating from the same place You won’t have to reeducate customers about where to find the business, and you won’t have to mount a search for suitable quarters Expert assistance Many times, the seller will agree to stick around as an employee or consultant to help you learn the nuances of the business and make the transition easier And if the seller isn’t willing to. .. professional help For example, you may want to have an accountant look over the financial records of the business or offer tax-planning advice Or you may want to have a lawyer draft or review the important legal documents (like the sales agreement and closing papers) that are part of every business purchase This book alerts you to the times when professional advice can be especially helpful and explains... their existing business but would neatly dovetail with it Example: Ernie and Paulette run a popular guitar studio They realize there’s a cap on how much they can earn by giving lessons, because there are just so many hours in the day At a meeting of music educators, they hear a rumor that a guitar and drum store in a high-traffic shopping mall may be up for sale They investigate and find that the rumor... positive and negative features But you, like many others, may find that on balance, it’s a desirable approach—and a goal you can attain with the help of this book Pros No need to reinvent the wheel An existing business has a history a track record—so you can tell whether the concept is sound and profitable An existing customer base You have a head start building up a roster of customers or clients—often the. .. $6,000—and he knows that because of his hard work, he’ll be able to sell the business some day at a handsome profit Andy, of course, could have tried to get a bank loan to buy an inventory of antiques and start a business from scratch But he felt it was less risky to buy the existing business and get the benefit of the goodwill that the owner had built up over the years He also liked the fact the business. .. Chapter Number What You’ll Learn Part 1 (Chapters 1-6) How to: • decide whether buying a business is right for you • avoid acting on incomplete or inaccurate information • take the practical and legal steps involved in buying • find an available business that fits your needs • figure out how big a business you can afford • analyze the tax consequences • set a realistic price range for a particular business, ... heady experience, but, in addition to the adrenaline rush, you may also experience anxiety You may have to get past a number of worries and concerns, including these things you might say to yourself: • I can’t afford a promising business • I may pay too much • The business may fail and I’ll lose all that I have • The seller may conceal crucial information • Business trends will change and hurt the business. .. interest at a 6% t annual rate—in 60 monthly payments of $2,320 each Two years after buying the business, Andy is confident he made the right decision He thoroughly enjoys talking antiques with his customers, and he looks forward to the buying trips that he and Judy take twice a year to replenish their inventory Each month, after paying the seller, the landlord, and two employees, Andy is able to pay him­ . 375 Sample #1: Asset Sale of a Restaurant by One Sole Proprietor to Another 376 Sample #2: Entity Sale of a Bookstore by the Two Shareholders to an Individual 384 Sample #3: Asset Sale of a Landscaping. leaving a salaried job and becoming your own boss. Or maybe you already own a small business and would like to expand by buying a similar operation or a complementary business. Welcome to. take the practicalandlegalstepsinvolvedin buying • ndanavailable business thattsyourneeds • gureouthowbig a business youcan a ord • analyze the taxconsequences • set a realisticpricerangefor a particular business, and •