How to Buy an LLC

Buying a business can be a complicated but exciting process. There are lots of different steps to address, from finding the perfect business to purchase to drafting and signing a purchase agreement and everything in between.

This guide walks through the five essential steps to purchase an LLC, including different considerations to make along the way.

Step 1. Search for a business to buy

The first step in buying an existing LLC is to search for the right business to buy. An entrepreneur should conduct some market research to determine the appropriate industry and company for their situation. From there, they can start to answer the question, “How much does it cost to buy an LLC?”

Things to Consider

When looking into whether and how to buy an existing LLC, keep the following in mind:

• Financing. How much funding does the buyer have to purchase an LLC? It may also be possible to get more money from a lender to help fund the transaction. But if the buyer is going this route, they’ll probably want to consider how taking on debt will affect the business and its finances.
• Operations. Who’ll operate the business after the LLC is purchased? Prospective buyers may need to contemplate their areas of knowledge and experience, including their limitations. If they need to acquire more skills or hire qualified staff to compensate for any knowledge gaps, they’ll want to factor those upskilling and hiring expenses into the cost of buying an LLC.
• Viability. What is the long-term viability of the businesses under consideration? Buyers should research the history and market fluctuations of the companies that they’re considering purchasing.

Once a person decides on an LLC purchase they’d like to make, the next step to buying an LLC from someone is to start negotiations.

Step 2. Begin negotiations

The second step to buying an LLC is to start negotiations. There are techniques buyers can use to help maximize the information they have at their disposal and their chances of landing a good deal.

Who’s authorized to negotiate?

A buyer can’t just walk into a business and negotiate a sale with the receptionist who mans the front desk. They need to find the person or people who are authorized to sell the business. Typically, the LLC’s operating agreement or Articles of Organization denote who can negotiate the sale of the business. Additionally, if the buyer is actually an LLC, the person negotiating on the purchasing company’s behalf also needs to have the authority to do so.

The first goal of negotiating is to start a conversation. The buyer will want to learn more about the business and to have access to the following resources regarding the LLC:

• Its books and records
• Tax returns
• Membership interest agreement
• Operating agreement
• Articles of Organization
• Financial statements, including information about all assets
• Employment agreements
• Handbooks
• History of the business and its ownership

Essentially, a buyer wants to learn everything they can about the business. Since the buyer wants to acquire an LLC, they want to know what their money’s going toward. In return, the LLC will likely ask a buyer to provide financial statements to prove they can afford to buy the business.

Step 3. Create a term sheet

In step three of how to acquire an LLC, it’s time to create a term sheet, also called a Memorandum of Understanding. The term sheet includes the proposed conditions and terms of the transaction, including the price and structure of the deal.

What goes into a term sheet?

In an LLC purchase, the term sheet contains essential features, such as:

• The proposed purchase price
• Who is buying the LLC company (an individual or a business)
• The structure of the deal (for example, whether the buyer is purchasing the LLC assets only or a portion of equity)
• The length and extent of due diligence
• Financing contingencies
• Valuation of the LLC

The term sheet isn’t binding on its own, but it does lay the foundation for the purchase agreement, which the parties will draft and sign later.

Step 4. Conduct due diligence

The next step in buying an existing LLC is to conduct due diligence. Due diligence is an essential step in the transaction where the buyer and their team complete a full investigation of the LLC to determine the risks and benefits of the purchase.

What to Look for

When performing due diligence, it’s prudent to look at all aspects of the LLC for sale, including:

• Lawsuits and disputes (current, past, and potential)
• The financial history of the business
• Economic projections of the company
• Licenses, permits, and other documents
• Debts and obligations
• Contracts
• Operational audit to uncover if they are or may be violating any laws or regulations

To reveal this information, review all books and records of the LLC and search public records to find information about the LLC.

When the buyer is satisfied that this due diligence hasn’t raised any red flags, it’s time to move on to step five: creating a purchase agreement.

Step 5. Create a purchase agreement

The final step is to create a purchase agreement. The purchase agreement outlines the deal’s terms and, unlike the Memorandum of Understanding, is binding once signed.

What goes into a purchase agreement?

The purchase agreement includes all the pertinent information about the transaction, including the following:

• The names of the parties
• The purchase price
• What’s being purchased
• What the purchase price doesn’t include
• The closing date
• The structure of the deal
• Contingencies (e.g., financing conditions)
• What happens at the closing and after the agreement closes (e.g., title transfers)

To finalize the transaction, the parties may sign other documents, such as leases, deeds, non-compete agreements, or other necessary contracts.

What are the next steps?

After the purchase agreement is signed and the transaction is closed, it’s time for more meaningful work to begin. For example, the new LLC owners need to notify the state and the federal government of the change in ownership. If the purchase only covered the assets of an LLC, the buyers might consider forming an LLC for it. The ZenBusiness Formation Plans can help make that process easy.

ZenBusiness can help!

Whether someone buys an LLC or starts a new business of their own, they’ll likely need services to support them. ZenBusiness has everything small businesses need to start, run, and grow their organization. From their Worry-Free Compliance service to their registered agent service and more, ZenBusiness provides the valuable tools entrepreneurs need to succeed. Join the hundreds of thousands of entrepreneurs who have trusted them throughout the years.