Why You Should Do Lien Searches Before You Buy a Business

Lien Search

When you’re buying a business, you should make sure that the business’s assets aren’t encumbered by liens. As I mentioned in Don’t Let the Seller’s Liens and Taxes Stalk You, even if you structure a business acquisition as an asset sale, the seller’s liens are your problem.

A lien is a legal right or interest that a creditor has in another’s property. If you’re buying a business whose assets are encumbered by a lien, someone else will have an interest in your property. If that someone is the seller’s creditor, that’s bad news for you if the lien is still intact after closing.

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Don’t Let the Seller’s Liens and Taxes Stalk You

stalking liabilities

“Leave the gun. Take the cannoli.” Fictional mobster Peter Clemenza delivers this famous line in The Godfather after a drive into the country with the godfather’s driver Pauli. The driver betrayed his boss and Clemenza has just meted out justice.

Take the good stuff. Leave the bad stuff. That’s the main idea behind buying a business via an asset purchase. Here are a few pointers so you won’t find yourself pursued by the Seller’s unpaid taxes and liens.

What’s an asset purchase?

There are innumerable ways to structure the purchase of a business, but most deals are either asset purchases or equity purchases. In an equity purchase, the buyer purchases the equity of a company (often referred to as the “target”) from its equity holders — stock in the case of a corporation and membership interests in the case of a limited liability company. The buyer ends up with the entire company, along with all of its assets and all of its liabilities. In a deal structured as an asset purchase, on the other hand, the buyer purchases the company’s assets but leaves the corporate entity behind, along with some or all of the company’s liabilities.

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Don’t Buy a Business Without Looking Under the Hood

looking under the hood

Before you buy a business be sure you’ve done your due diligence. Even in the days of Carfax, you wouldn’t buy a used car without looking under the hood to make sure the car’s in good condition. You’d probably also take it to a mechanic to have it examined by an expert. If you’d do this for a car purchase, why would you making a life-changing investment without making sure the business you’re buying is in good condition?

If you’re smart, you won’t.

You’ve probably heard the phrase caveat emptor — “buyer beware.” It means that it’s the buyer’s responsibility — not the seller’s — to ferret out issues that could affect whether the buyer wants to go through with the deal. The onus is on the buyer to ask questions and challenge assumptions.

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Recording a Lien on a Missouri Vehicle

Missouri vehicle lien

In How to Title a Vehicle in Missouri, I provide step-by-step instructions on how to transfer title to a vehicle, obtain a new title, and register the vehicle. In today’s post, I discuss recording a lien on a vehicle.

When you purchase a business via an asset sale, you have to transfer the assets you’re purchasing out of the seller’s company and into your company. Most assets can be transferred by having the seller sign a general bill of sale. But some assets, such as cars and trucks used in the business, have special rules.

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