Acquiring an existing business is an appealing alternative to starting a new business from scratch. If the business you want is a limited liability company (LLC), you can follow these steps to acquire it.
1. Get LLC Members to Agree to Sell.
The first step in the acquisition process is to get the LLC's owners, called members, to agree to sell you the LLC. Once they agree to sell, discuss the key terms of the agreement such as the sale price, date of sale, and making installment or lump sum payments.
It may take multiple negotiation sessions to reach a preliminary agreement. You can memorialize this preliminary agreement into a document called a letter of intent. A letter of intent usually states that it's not binding and allows you to have a due diligence period to investigate the LLC before entering into a final agreement.
2. Review the LLC's Governing Documents.
Once you make a preliminary agreement, ask for a copy of the LLC's operating agreement and other internal governing documents such as buy-sell agreements. Review these documents carefully to see if there are any restrictions on the transfer of membership interests or rules, such as what percentage of members or managers must vote in favor of selling the LLC.
3. Complete Due Diligence.
Before entering into a final agreement, complete due diligence, or research the LLC to ensure you know exactly what you're purchasing. You'll want to find out about the LLC's assets, liabilities, management structure, tax status, pending lawsuits, and typical earnings.
You don't want to buy a business that has no value or worse, is just a bundle of debt. In most cases, an accountant or valuation expert can help determine what is the fair value of the LLC.
4. Draft Transfer Documents.
Once you're satisfied with your knowledge of the LLC and the terms of the deal, draft and sign documents that transfer all membership interests in the LLC to you.
5. Revise State Filings, Tax Documents, and LLC Documents.
After completing the sale, update the articles of organization, LLC tax records, and LLC internal documents to reflect that you are now the sole member of the LLC. You may also want to change how you operate the LLC. You can do this by updating the LLC's operating agreement.
6. Update Contact Information.
Notify all individuals and businesses that deal with the LLC to let them know you now own the LLC and provide your contact information. Failure to do so could result in notices, checks, and other important documents being sent to the LLC's former owners.
Acquiring an LLC is often a time-consuming and complex process. To avoid mistakes that might cost time and money, consult with a business attorney to help you through the process.
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