How to Buy an LLC

Our guide walks you through the five steps of buying an LLC and answers commonly asked questions about the process. We hope to answer your questions about purchasing an LLC or starting a new one.

Step 1. Search for a business to buy

The first step in buying an existing LLC is to search for the right business to buy. Perform market research to determine the appropriate industry and company for your situation. From there, you can start to answer the question, “How much does it cost to buy an LLC?”

Things to Consider

When looking into whether and how to buy an existing LLC, keep the following in mind:

• Financing. How much funding do you have to purchase an LLC? Also, consider how you can acquire more money to fund the transaction. Likewise, consider how taking on debt will affect the business and your finances.
• Operations. Who’ll operate the business after you buy the LLC? Contemplate your areas of knowledge and experience, including their limitations. If you need more skills or staff to compensate for any knowledge gaps, include this in the cost of buying an LLC.
• Viability. What is the long-term viability of the businesses you’d like to buy? Research the history and market fluctuations of the companies that you’re considering purchasing.

Once you decide on an LLC purchase you’d like to make, the next step to buying an LLC from someone is to start negotiations.

Step 2. Begin negotiations

The second step to buying an LLC is to start negotiations. There are techniques you can use to help maximize the information you have at your disposal and your chances of landing a good deal.

Who’s authorized to negotiate?

Before you start discussing the price of the LLC for sale with anyone, make sure you’re negotiating with someone authorized to do so. You can typically find this information in the LLC’s operating agreement and Articles of Organization.

If you’re acting on behalf of an LLC, you must also have the authority to do so.

The first goal of negotiating is to start a conversation. You’ll want to learn more about the business and to have access to the following resources regarding the LLC:

• Its books and records
• Tax returns
• Membership interest agreement
• Operating agreement
• Articles of Organization
• Financial statements, including information about all assets
• Employment agreements
• Handbooks
• History of the business and its ownership

Essentially, you want to learn everything you can about the business. Since you’re looking to buy an LLC, you want to know what your money’s going toward. In return, the LLC will likely ask you to provide a financial statement to prove you can afford to buy the business.

Step 3. Create a term sheet

In step three of how to acquire an LLC, you create a term sheet, also called a Memorandum of Understanding. The term sheet includes the proposed conditions and terms of the transaction, including the price and structure of the deal.

What goes into a term sheet?

In an LLC purchase, the term sheet contains essential features, such as:

• The proposed purchase price
• Who is buying the LLC company (an individual or a business)
• The structure of the deal (for example, whether you’re purchasing the LLC assets only or a portion of equity)
• The length and extent of due diligence
• Financing contingencies
• Valuation of the LLC

The term sheet isn’t binding on its own, but it does lay the foundation for the purchase agreement, which you’ll draft and sign later.

Step 4. Conduct due diligence

The next step in buying an existing LLC is to conduct due diligence. Due diligence is an essential step in the transaction where you and your team complete a full investigation of the LLC to determine the risks and benefits of the purchase.

What To Look For

When performing due diligence, you’ll want to look at all aspects of the LLC for sale, including:

• Lawsuits and disputes (current, past, and potential)
• The financial history of the business
• Economic projections of the company
• Licenses, permits, and other documents
• Debts and obligations
• Contracts
• Operational audit to uncover if they are or may be violating any laws or regulations

To reveal this information, review all books and records of the LLC and search public records to find information about the LLC.

When you’re satisfied that your due diligence hasn’t raised any red flags, it’s time to move on to step five: creating a purchase agreement.

Step 5. Create a purchase agreement

The final step is to create a purchase agreement. The purchase agreement outlines the deal’s terms and, unlike the Memorandum of Understanding, is binding once signed.

What goes into a purchase agreement?

The purchase agreement includes all the pertinent information about the transaction, including the following:

• The names of the parties
• The purchase price
• What you’re purchasing
• What the purchase price doesn’t include
• The closing date
• The structure of the deal
• Contingencies (e.g., financing conditions)
• What happens at the closing and after the agreement closes (e.g., title transfers)

To finalize the transaction, the parties may sign other documents, such as leases, deeds, non-compete agreements, or other necessary contracts.

What are the next steps?

After you close the transaction, it’s time for more meaningful work to begin. For example, you’ll need to notify the state and the federal government of the change in ownership.

You might consider forming a new LLC if you purchased only LLC assets. When you do, we can help you with how to set up an LLC using our Business Formation Services.

We can help!

Whether you buy an LLC or start a new business of your own, you’ll likely need services to support you. We have everything small businesses need to start, run, and grow their organization. From our Worry-Free Compliance service to our registered agent service and more, we have the valuable tools you need to succeed. Join the over 300,000 entrepreneurs who have trusted us throughout the years.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.