Checklist Before Buying a Business

Checklist Before Buying a Business

If you are considering buying someone else’s business, there are many important legal and financial issues to consider. Research needs to be done regarding the financial health of the company, along with ensuring that all state or federal contracts are filed on time to ensure the legality of the sale. The entire process of purchasing a business can be complex and challenging. Here is a due diligence checklist of serious items to consider requesting, obtaining, reviewing carefully before buying a business.

Corporate Records

  • Articles of Incorporation
  • Certificate of Good Standing from the Secretary of State
  • Bylaws
  • Minutes of Meetings
  • Organizational Chart
  • Listing of Shareholders
  • Agreements regarding shareholders rights and responsibilities
  • Listing of all states where the company does business, owns or leases property, and/or maintains employees.
  • Annual reports

Corporate Finances

  • Audited financial statements
  • Auditor’s notes to the financial statements
  • Analyst reports if available
  • Schedules of all accounts receivable and payable, inventory, indebtedness and contingent liabilities
  • Description of any depreciation or amortization methods and accounting practices
  • Analyses of fixed and variable expenses, as well as gross margins
  • Company’s general ledger
  • A description of internal control processes.

Corporate Physical Assets, Real Estate and Intellectual Property

  • A listing of all assets and the locations of all assets and equipment.
  • Listing of any sales or purchases of major equipment
  • All real estate transactions
  • All trademarks, trade names, copyrights, patents, and patent applications
  • All trade secrets and the methods used to protect them

Corporate Employees and Benefits

  • Listing of all employees
  • Employee handbook
  • Schedule of all employee benefits, including sick leave, vacation leave,
  • Summary Plan Descriptions and Plan Documents for any ERISA covered retirement benefits plans
  • Employee Stock Ownership Plan documents
  • Any government investigations either closed or pending
  • Collective bargaining agreements
  • Any discrimination or harassment lawsuits
  • Any labor disputes
  • Workers compensation policy, along with any workers’ compensation claim history

Corporate Environmental Issues

  • Environmental permits, licenses, and audits
  • A listing of hazardous substances, and disposal methods
  • A description of the Company’s disposal methods.
  • Any EPA investigations either closed or pending

Corporate Taxes

  • All federal, state, local, and foreign tax returns.
  • Any IRS investigations either closed or pending.
  • Employment tax filings, excise tax filings or any tax liens.

Corporate Contracts

  • Any and all contracts, loan agreements, distribution agreements, or other contracts that would pertain to any internal or external aspect of the business.

Other Important Questions to Ask
Ultimately, if you are attempting to purchase a business in California you are wanting to ensure that the business is a sound financial decision. Consider asking the following additional questions.

  • Is the business currently profitable? How long has the business been profitable?
  • What are the largest customers of the business? How long have they been customers? What percentage of sales do they make for the company?
  • Will there be any significant changes between now and the time of sale?
  • Are there any pending transactions that would take a substantial amount of money to resolve?
  • Is the company involved in any kind of litigation?
  • Have there been any articles or press releases related to the company in the past several years?

Contact an Experienced Business Attorney
If you are considering buying a business, this checklist is really just the start. Understanding the legal and financial aspects of purchasing another person’s company can be overwhelming. Contact business law attorney in La Jolla Law Office of Kris Mukherji at (858) 442-5747. We can help ensure that you have all of your questions answered, and all of the correct forms filed on time as you begin the process of buying a new business.