What you need to know about Buying an Existing Business in New York

by Fred Abramson on August 5, 2013 · 0 comments

Business Business (Photo credits: www.roadtrafficsigns.com)


When you buy a business, you purchase what is not known about the company.

  • Has the business ever been involved in any lawsuits?
  • Does the business from really have a good reputation or do they use unethical methods to obtain business?
  • Is the business making a profit or are they cooking the books?
  • How much inventory will you be purchasing?
  • In what condition is the equipment?
  • What are the state of any contracts?

There are dozens of questions and concerns that you need to be aware of. Investigation and research is vital before purchasing a new company.

If you plan on buying a business, it is critical that you hire an attorney and an accountant to perform due diligence. I would recommend looking back at least six years, because the statute of limitations of breach of contract in New York is that long. The idea here is to protect yourself from any type of liability and unnecessary litigation.  My office checks all court databases to ascertain the status of any litigation. If you are purchasing intellectual property, make sure any trademarks are current.

In terms of accounting, if you buy of an existing business you may able to amortize things such as customer lists, goodwill and intellectual property. That is why I always recommend that you speak to an accountant.

Structuring the Purchase of the Agreement

Basi­cally, there are two ways that you can buy a company:

  1. Asset Pur­chase;
  2. Stock Pur­chase.

In most cases, you will be bet­ter off pur­chas­ing the assets. There are three big ben­e­fits to buy­ing the assets and not purchas­ing the stock:

  • Tax ben­e­fits. With an asset pur­chase, you can give dif­fer­ent pur­chase prices among the var­i­ous pieces of the com­pany.  For exam­ple, cer­tain equip­ment can be deducted imme­di­ately so you may want to assign a greater price for those assets.
  • You can choose not to acquire lia­bil­i­ties of the busi­ness you wish to buy.Per­haps the com­pany failed to pay a sup­plier for goods it ordered two years ago.  The statute of lim­i­ta­tions on a breach of con­tract law­suit is six years, so you could be hit with a law­suit four years after buy­ing the company.
  • You don’t have to buy every asset of the cor­po­ra­tion. It could be in you best inter­est to buy only the prof­itable por­tions of the company.

Some­times you are not given the choice of how a busi­ness sale could be struc­tured.  Many busi­ness that are for sale require pur­chase of stock only for a vari­ety of rea­sons. For exam­ple, the seller may believe that there are tax advan­tages for sell­ing all the stock.  If you have to buy cor­po­rate stock, it is imper­a­tive to con­duct a thor­ough inves­ti­ga­tion of the corporation’s books and oth­er­fi­nan­cial deal­ings.  You can insert war­ranties and indem­ni­fi­ca­tion clauses in the stock purchase agree­ment. You may also be able to pur­chase insurance.

The Law office of Frederic R. Abramson represents businesses in New York. If you have any questions regarding purchasing a business, feel free to call at 212-233-0666.




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