Buying an established company is often considered a good way to get into business. A company that is already in business has everything in place, and all you need to do is take over.
There are two main options for the purchase of a business. You may purchase the entire business, or you may purchase the assets of a company. There are reasons why you may prefer one option over the other. Both choices have some pros and cons, so it is best to understand the potential risks and advantages of each buying option before you proceed with a purchase.
Purchase the Assets of a Company
Purchasing the assets of a company means that you buy only the items of value. These may include such things as the inventory, the manufacturing equipment, the fixtures, the operational information, and even the name of the business. It does not include any debts that the business may owe. The new owner is then able to start a new business and create a new LLC. Since you can keep the name of the business, you will maintain the current customers and the goodwill the company has accumulated while doing business.
Purchase the Entire Business
When you purchase an entire business, you agree to buy the assets of a company and are also responsible for any liabilities of the business. Therefore, buying a business in its entirety may be riskier than purchasing only the assets of a company. You will need to be sure that you are aware of the company’s complete financials prior to purchase. You don’t want to buy a business only to find out that the business has serious liabilities or debts that could seriously hurt your profitability.
Advantages of Purchasing the Assets of a Company
There are some advantages of purchasing just the assets of a business rather than its entirety. You will not be liable for any debts that the business owes and, therefore, are sure of the value of the business you are buying. If you acquire all the assets and later decide to sell some of them, you are not required to pay capital gains taxes. This can be particularly advantageous if you decide to sell real estate. In addition, tax laws allow you to amortize goodwill for a period of up to 15 years. This provides the possibility of a significant tax advantage in some cases. Once you buy the company, you will have the right to make any changes that you prefer.
Disadvantages of Buying Company Assets
While there are many advantages to buying only a company’s assets, there are also some potential disadvantages. When you purchase a company’s assets, you will need to decide how to handle the employees. You may want to keep current employees, or you may prefer to hire your own. This creates a challenging situation that can have some pitfalls. In addition to dealing with employees, another possible disadvantage is that you will need to negotiate and create new contracts with suppliers and others. You will need to understand the possibility that the new contracts could be more costly or may be difficult to put in place.
Buying any business requires a good deal of review. To learn more about the legal aspects of purchasing the assets of a company, contact us at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or online today.