Buying an existing business can be an appealing alternative to starting one from scratch. The customer base, employees, equipment, vendor relationships, and operating history may already be in place. But a business that looks successful from the outside can come with obligations and risks that are not immediately apparent. Before signing a purchase agreement, buyers should understand exactly what obligations may come with the transaction and whether the business is in the financial and legal position the seller has represented. Look Beyond the Financial Statements Financial records are an important part of evaluating a potential acquisition, but due diligence should extend well beyond revenue and profitability. A buyer should review the business's tax records, debts, pending or threatened litigation, insurance coverage, licenses and permits, and any liens or other claims involving business assets. Existing contracts also deserve careful attention. Agreements with customers, vendors, suppliers, lenders, and other third parties can have a significant impact on the value of the business. Some contracts may be transferred to a new owner, while others require consent or contain provisions allowing the other party to terminate the agreement after a change in ownership. If the business operates from leased property, the commercial lease can be equally important. Buyers should understand how much time remains on the lease, renewal options, rent increases, maintenance obligations, and whether the landlord must approve an assignment or a new lease. Vermont buyers should also be aware of state-specific obligations that can arise in connection with a business transfer. For example, Vermont law includes notice requirements involving certain bulk transfers of business assets and provisions that may affect a buyer that continues the operations of an existing employer. Know the Value of What You Are Buying Employees can be one of a business's most valuable assets, particularly when customer relationships or specialized knowledge depend on particular people. Before closing, buyers should understand the existing workforce, compensation and benefits, employment agreements, accrued obligations, and any ongoing employment disputes. In Vermont, acquiring and continuing an existing business can also have implications for unemployment insurance. Under certain circumstances, an acquiring business may be treated as a successor employer, and the predecessor's experience-rating record may transfer to the successor. Buyers should also identify precisely which physical and intangible assets are included in the purchase. Depending on the business, that might include equipment, inventory, vehicles, intellectual property, websites and domain names, customer information, trade names, or other valuable rights. It is important to determine not only that the seller possesses these assets, but also whether they are subject to liens or security interests that need to be addressed before closing. Asset Purchase or Equity Purchase? One of the most important decisions in structuring an acquisition is whether to purchase the assets of the business or the ownership interests in the company itself. In an asset purchase, the buyer generally purchases specifically identified assets and assumes only the liabilities identified in the agreement, subject to applicable law. This structure can give the parties greater ability to define what is — and is not — part of the transaction. In an equity purchase, the buyer purchases ownership of the existing company. The business entity continues to own its assets and remain subject to its contractual obligations and liabilities. That makes a careful investigation of the company's history particularly important. Neither structure is automatically better. Tax consequences, contracts, licenses, liabilities, financing, and the buyer's plans for the business can all influence how a transaction should be structured. Contact Deppman Law PLC Purchasing a business is a significant investment, and issues discovered after closing can be far more difficult and expensive to address than those identified during negotiations. An attorney can help evaluate the proposed transaction, conduct legal due diligence, identify potential risks, and prepare or review the agreements necessary to protect the buyer's interests. If you are considering buying a business in Vermont, contact Deppman Law PLC to learn more about the acquisition process and the steps you can take before signing.