You generally buy an existing business because you believe that the existing business represents less of a risk than starting a new business from scratch.

Buyers of businesses generally prefer to arrange for an asset purchase transaction instead of purchasing an ownership interest in the target business entity for one big reason: to avoid exposure to liabilities (both known and unknown) related to the business that is being acquired. But liability avoidance cannot be assured unless the seller complies with the applicable bulk sales law.

On the other hand, if you purchase an ownership interest in the target business, the bulk sales law issue does not apply, but other due diligence procedures are appropriate. For a corporation, an ownership interest is stock; for a partnership, it is a partnership interest; for an LLC treated as a partnership for tax purposes, it is a membership interest.

Here is what you need to know about buyer due diligence issues. ... Log in to view full article.