While you can always register a new LLC for your business, one of the most ingenious approaches towards owning an LLC is buying an existing LLC. This, however, is not a simple process and requires due diligence, and this guide makes sure that you are aware of what you’re jumping into when you plan to buy an existing LLC.
You can buy an LLC in two ways – you can set up a new LLC and buy an existing LLC under it to continue the LLC structure, or you can buy a current LLC outright, also referred to as a bulk purchase. So, what exactly is the difference?
BUYING AN EXISTING LLC UNDER A NEW LLC
This is not the outright purchase of an LLC, and it involves buying an existing LLC under the umbrella of your LLC. It is done to avoid the liabilities of the LLC that you are buying, as you will only be purchasing the assets of your targeted LLC. This kind of purchase gets you the assets of the LLC that you are targeting, and you don’t own the total LLC whose assets you have bought.
Under various financial scenarios, many LLCs succumb under the pressure of liabilities, and their owners put the assets of the LLC under sale. It is often helpful in acquiring the LLC structures, where you can continue it under the umbrella of your original LLC.
- Due Diligence Factors To Consider
Even when you’re not assuming ownership of the LLC itself, you will have to start the process by seeing the operating agreement of the LLC. Unless this document permits its members to sell the assets without the rest of its members’ written approval, you’ll always need that assurance from every member of the LLC in an official document.
- Check Seller’S Financials
Your buyout agreement of the assets with the targeted LLC should also clearly state that you’re buying assets that are entirely free from encumbrances. In this context, you can acquire the help of attorneys to insert specific clauses in the agreement, which will make the LLC members responsible for any future claims against the assets.
It is essential to consult with the records office of the given state to check for any possible suits against the LLC, or its members. Knowing about any existing or potential lawsuits against the LLC can help you in making a better decision. Once you are done with the purchase of assets and have the assurance of no liabilities on the assets, you can have your lawyer draw you your final purchase of assets document.
BULK PURCHASE – BUYING A COMPLETE LLC
Bulk purchase of an LLC offers you full ownership of the LLC, including the liabilities, and this guide will revolve around the process of bulk purchase of LLCs. So, how do you start the bulk purchase?
- Finding And Selecting An Llc To Buy
It starts from finding the LLC that you will buy. However, this is not an easy quest, as there are hardly any ads in newspapers or on other platforms about LLC sales. Your best bet to buy an LLC is to network with your local trade groups and chamber of commerce. Similarly, business newspapers and trade publications can also be helpful.
Once you have found the business you are going to buy, you can initiate contact with the seller of the LLC. If your negotiations have succeeded, you may then begin to confirm your deal will and will not include, and you may reach a tentative purchase price.
These things are generally spelled out in a memorandum of understanding or term sheet. It is a short legal document that specifies the core components of the deal. This document also confirms the parties’ intentions involved in the deal and serves as a blueprint for a more formal document of contract.
- Llc Purchase And Operating Agreement
Once you have concluded buying an LLC after checking the legal and financial status of the LLC, you’ll still need a written agreement of every LLC member of the LLC that you are buying.
It is generally done by revising the operating agreement of the LLC and putting the name of a new owner in it with the mutual consent of all the members. Optionally, sometimes, you can also require the existing LLC’s members to assume any financial responsibility that is concealed and not expressed in the operating agreement.
It is critical to make sure that if the LLC has creditors, they sign a written agreement to the sale of the LLC and acknowledge their willingness to continue as the debtor/creditor relationship on the current terms.
Another legal step involved in the purchase of an LLC is filing its responsibilities. Transfers of the tangible assets in both aforementioned purchase methods require adequate filings of ownership changes assessor office in your state.
- Get The Deal Done
If you’re buying an LLC outright, and not just its assets, some states will require you to notify your Secretary of State about the change of LLC ownership. It is usually done by filing the revised operating agreement that includes the details of the new owner and new members and the complete details of the new registered agent. Since these requirements vary from state to state, an attorney can prove to be very helpful to get you through this.
- Plan For Future
If you plan to start a brand-new business, buying an LLC is always a preferred alternative to an LLC formation. However, it is crucial not to let your entrepreneurial enthusiasm and energy get in the way of your common sense, and plan your purchase keeping the future in mind. Thoroughly investigate the business that you are planning to buy, and always be willing to walk away from what looks like a bad deal.
FREQUENTLY ASKED QUESTIONS
Here are some of the frequently asked questions about the purchase of an LLC answered:
- Can an LLC be bought?
Yes, an LLC can be bought in two ways. You can either buy the complete LLC or buy its assets without taking over the LLC completely.
- Should I buy an LLC?
Yes, it is a better option as compared to forming a new LLC. However, it is imperative that you always check out for the details of the LLC that you are buying to avoid getting yourself in a difficult situation.
- What is the cheapest way to acquire an LLC?
The cheapest way to acquire an LLC is the do-it-yourself way. Gather enough knowledge about the technicalities of such deals, and step up to do everything yourself.