This article are provided for information purposes only, and are not intended as legal advice.

Buying a business – checklist

November 8th, 2008

Obtain a copy of all the company’s commitments including leases, operating or capital and the property lease.   Are these transferrable to the new owner or does the new owner have to be approved by the lessor?

Keep in mind, if the old owner of a business has guaranteed a lease, the lessor may allow the new owner to take over the lease but they may not release the old owner from the guarantee!  In those cases, the old owner should make sure that they are notified in case of default so that they can rectify the situation.  For example, three partners owned a company and they also owned land which were fully paid for but was to be used to expand the business.  One of the owners needed cash and asked if the other owners would allow him to place a mortgage on the property so that he could take out his equity.  The mortgage was for $80,000 and the two owners signed the mortgage document stating that the was the maximum amount of the mortgage allowable.  They did not read the fine print, not only were they liable for the $80,000 mortgage but also the cost of collection and unpaid interest charges and all cost of collecting the mortgage.  When the one partner defaulted to the bank, the other two partners had to pay $125,000 to discharge the liabilities to the bank, far more than they thought that they would be responsible for.

Filed under: Buy a business — Gary Landa @ 9:57 am

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