Small Business Attorney Review of Debts before Buying a Business

An asset purchase transfers identified property and agreed obligations. Check whether equipment and inventory belong to the seller, a lessor, or a supplier. An equity purchase changes ownership of an existing entity, which generally retains its debts. Those debts affect the acquired business without automatically becoming the buyer’s personal obligations.

Identify each assumed debt by creditor, amount, contract, and period. Asset buyers generally do not assume the seller’s debts merely by purchasing assets. Exceptions may involve express or implied assumption, a de facto merger, mere continuation, or a fraudulent transaction. Statutory liabilities require separate review, so an exclusion clause does not necessarily defeat a third party’s claim.

Read the business lease and amendments for assignment restrictions, landlord consent, arrears, deposits, and guarantees. An equity transfer may trigger a change-of-control clause. Obtain a current rent ledger and, where available, written landlord confirmation of defaults. A commercial lease review should establish what must happen before the buyer can occupy the premises.

Match unpaid invoices with deliveries, credits, and disputes. For each material vendor contract, check transfer restrictions and whether continued service depends on settling old balances. Separately identify deposits, gift cards, prepaid services, and unfinished orders. Specify who will perform or refund them, and reflect accepted obligations in the purchase price.

Review payroll registers, time records, benefit policies, and pending complaints for unpaid wages, overtime, or other obligations. Distinguish state wage requirements from applicable federal law, including the Fair Labor Standards Act. Employee retention does not automatically resolve historical liability. The governing claim and transaction facts determine whether successor liability requires further analysis.

For covered transfers outside the ordinary course by a seller required to collect sales tax, submit Form AU-196.10 at least 10 days before paying for or taking possession of business assets, whichever occurs first. Use an authorized delivery method and preserve proof of timely notice.

Filing the form alone does not clear the transaction. Review the Tax Department’s response and applicable withholding requirements. A notice of claim generally requires withholding payment pending further review. Failure to follow the procedure can expose the purchaser to unpaid sales and use taxes. A bulk sale release does not clear unrelated taxes or creditors’ claims.

A security interest generally continues after a sale unless the creditor authorizes a transfer free of it or another applicable rule provides otherwise. Search the appropriate filing jurisdictions using the seller’s correct legal name, examine collateral descriptions, and arrange payoff and release documentation. UCC searches do not replace separate checks for tax liens, judgments, or other relevant claims.

Compare the final schedules with the records reviewed and update material balances before signing or closing. Avoid relying on an unsupported statement that the business has “no liabilities.”

An indemnity may require the seller to reimburse specified losses, subject to negotiated notice requirements, time limits, and caps. Its value depends partly on the seller’s ability to pay. An escrow or holdback may support recovery but does not automatically prevent third-party claims. For small business transactions, align these terms with required consents, tax responses, and releases. If documents remain outstanding, use the agreement’s extension, waiver, or termination provisions.