Two Ways to Buy a Business or Franchise

One of the first decisions when buying an existing business is whether to purchase just the assets of the business, or to buy the company itself (the stock or membership interest). The choice is complicated and often tax-driven.

In an asset purchase, the buyer looks at all the assets of the business – the goods/services provided, the inventory, furniture, fixture and equipment, vehicles, websites, social media and marketing activities/materials, trademarks, patents, copyrighted material and trade secrets (intellectual property), employee relations and goodwill. The buyer can buy all or part of these assets from the seller’s company. Typically, the assets are purchased free and clear of all debt or other obligations. This is the most common method of purchasing an existing business.

The other way to buy a business is to buy the stock of a corporation or the membership interests of an LLC. This is like having the title to the business transferred to the buyer. The buyer then takes over the business as it is, and assumes all debts and liabilities of the company. This can be risky for a buyer and requires extensive due diligence to make sure they have discovered and understand all the liabilities.

It is important to have legal and tax advice in determining the structure of the purchase.