A person at a desk smiles as he works through the steps he needs to take to set up an entity to buy a business.

Pro Tip: Set Up an Entity Before Buying a Business

When most people set out to “buy a business,” what they’re really doing is buying a company’s assets. Many are interested in customer lists, brand story, and reputation, along with tangible items such as equipment, inventory, and perhaps the real estate that houses them. Few new owners buy businesses in their entirety because they don’t want to take on the debts and liabilities that were a previous owner’s responsibility.

These asset-transfer sales require a special step: New owners need to set up their own business entity that can accept and hold the acquired business’s assets, and they must do this before buying the business.

Let’s work through an example to explain the process:

 

Zane plans to buy 17th Street Car Wash, a business owned by his neighbor, Alan. The business is thriving and has equipment, inventory, and assets that make the business quite valuable. However, Alan has taken on two separate loans to finance construction and the purchase of equipment.

Zane would like to purchase the assets but not take on the debt. He plans to set up a new business entity, which he names Zane Corp., and proceeds with buying the business. The assets, including the brand name, transfer to Zane’s new entity, and he can continue conducting business as 17th Street Car Wash. The debts, however, do not transfer.

 

If you plan to acquire a business’s assets, you’ll need to set up your own business entity and make the offer through your new business. Take the following steps to get started:

 

1. Choose a name for your new business entity.

Read our guide, Strategies for Naming Your Business, to explore some best practices.

 

2. Decide on the business structure you’ll use.

Our guide, Small Business Basics: Choose a Business Structure, can help you compare your options.

 

3. Register your business with the state(s) in which you plan to operate.

Another Small Business Basics article can help you take on this task. Read Small Business Basics: How to Register Your Business with State and Local Governments.

 

4. Open a business bank account.

Learn how to find the right banking solutions in our guide, Small Business Basics: Attaining a Business Bank Account.

 

5. Work with an attorney to make an offer for the new business.

Two resources will help you with this important step. Read The Reasons You Need a Letter of Intent (LOI) to Purchase a Business and The Right Attorney for Your Acquisition.

 

6. Pursue financing options that can help you fund your purchase.

Read Your Go-to Guide to Financing an Acquisition to explore a variety of options.

 

What's next?

There are many other steps involved in buying a business, including conducting due diligence and negotiating with the seller. We can lend support throughout the entire process. Log into your owner’s portal for a step-by-step guide to getting started.

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