One of the best ways to start a business is to purchase one that is already profitable. If you are considering purchasing another business, you will need to prepare several documents and understand several legal and financial aspects of the business. The process of purchasing a business can be overwhelming. The following is a checklist of important things to consider before purchasing an existing business.

Company Records

Always request the following records, and if they are not available, determine if there is a justifiable reason for their absence.

• Articles of Incorporation
• Secretary of State Document – Certificate of Good Standing
• Company Organization Charts, Bylaws, Minutes of Meetings, Listing of Shareholders, Shareholder Agreements, and any other Company documents that established the business.
• All states in which the company operates has employees or owns property

Company Finances

• Company financial statements, along with any auditor’s notes
• Accounts receivable and payable, a listing of all assets and inventory, a listing of all indebtedness and contingent liabilities
• List of the company’s depreciation/amortization methods and accounting practices
• Company’s general ledger
• Company’s internal control processes as they relate to finances
• Any contracts the company has with any other entity
• All federal, state, local, and foreign tax returns.
• Documents involving and previous or current IRS investigations
• Employment tax filings, excise tax filings or any tax liens

Company Assets

• Listing of all physical assets, including any major equipment, or supplies
• Copies of all company real estate
• All intellectual property assets including trademarks, trade names, copyrights, patents, trade secrets, and patents, or applications for these
• Any method used to protect any intellectual property rights, such as trade secrets

Company Employees

• Employee Organizational Chart
• Employee Handbook
• Listing of all provided employee benefits, including sick leave, vacation leave, retirement plans, workers’ compensation benefits, etc.
• Summary Plan Descriptions and Plan Documents for ERISA covered retirement benefits plans
• Employee Stock Ownership Plan documents
• Documents involving and previous or current government investigations
• Collective bargaining agreements
• Documents involving any previous or current discrimination or harassment lawsuits
• Documents involving any previous or current any labor disputes

Company Environmental Issues

Some companies deal with environmental waste or other businesses where they are required to follow strict environmental guidelines. Make sure to ask for the following documents if you are considering purchasing this type of business.

• Federal and/or state environmental permits, licenses, and audits
• A listing of hazardous substances, and appropriate disposal methods and processes
• Documents involving any previous or current Environmental Protection Agency investigations

Even More Business Questions

Having the guidance of an experienced business attorney can ensure that you not only ask for all of the correct documents, but that you ask the right questions, as well. If you plan to purchase a business in California you will want to ensure that your business decision is a financially prudent one. Consider the following questions:

• How profitable is the business now, and how long has it been profitable? 
• Where are most of the customers based, and how long have they been loyal customers?
• Are there any pending financial contracts or transactions that would cause a substantial change between now and the time of the purchase of the company? 
• Has there been any litigation between the company and any other entities?

Contact an Experienced Business Attorney