Buying a new business can be an exciting and risky endeavor. The economy and its effect on individual businesses are impossible to predict, and what looks like a smart deal one day can turn into your biggest financial regret the next. But Outside economic factors and a business’s fluctuating revenue stream aren’t the only reasons why buying a business from the owner is risky: Even if you trust the person you are buying from, the seller represents a potential liability. There are several ways the actions of the seller can compromise or jeopardize your new business endeavor, as a business attorney, can explain.
A Fraudulent Transaction
Obviously the biggest risk, legally speaking, is that trying to expand your business horizons ends with you getting caught up in something illegal. If the person selling your business is simply using it to illegally transfer assets or to avoid paying debts, then they can be tried and jailed for money laundering and other business-related crimes. If this happens, and you can prove you had no knowledge of it, then the transaction will be considered fraudulent, essentially hitting the reset button and pretending the transaction never occurred.
The Business Is Being Sued
Hiding illegal activity in a business deal is an extreme case of a seller not being honest or holding up their end of the bargain. Another circumstance to watch out for is if a business you are purchasing is currently being sued. In the event that the transfer goes through, you will become liable for covering any damages from the suit, along with dealing with any damages to your business’s reputation as a result.
A lien on a business is a bad sign; not only does it take up valuable revenue, but it acts as a warning that the seller you are buying from is not competent with running a business. This kind of debt will only be on properties and other physical assets; if you are assuming control of the business property in your purchase, make sure to check for liens before you buy.
Always make sure you research the business and the owner before you finalize your purchase. Write up a contract specifying what conditions you will assume the business under, and what (if any) debt or liabilities you are willing to take on. Without a written contract, you have no grounds to stand on in a lawsuit; if you do, and the seller proves to be dishonest or untrustworthy, then you can hire a business lawyer to take them to court for it.