Buying a Business in Florida: Are You Buying the Company or Just Its Assets?
When someone says they are “buying a business,” that phrase can describe two very different transactions.
The buyer may be purchasing the ownership interests in the company itself, or the buyer may be purchasing only selected assets used by the company. This distinction affects what the buyer receives, which liabilities may follow the buyer, and how the transaction should be documented.
Before signing a purchase agreement, both parties should understand exactly what is—and is not—being sold.
Option One: Purchasing the Company
In an equity purchase, the buyer acquires the ownership interests in the existing business entity. For a limited liability company, this typically means purchasing the seller’s membership interests. For a corporation, it generally means purchasing the seller’s shares.
The legal entity continues to exist after closing. Its assets, contracts, employees, bank accounts, licenses, debts, and prior history remain associated with the same company, subject to any restrictions or required approvals.
This structure may provide continuity because the business does not need to transfer every asset into a newly formed entity. However, the buyer is also acquiring a company with an existing history.
That history may include:
Unpaid taxes;
Pending or threatened claims;
Employee-related obligations;
Contractual defaults;
Outstanding loans or liens;
Regulatory violations;
Warranty or customer claims; and
Other liabilities that may not appear on the company’s financial statements.
For this reason, purchasing the company itself generally requires extensive legal and financial due diligence. The purchase agreement should also include appropriate representations, warranties, indemnification obligations, and procedures for addressing liabilities discovered after closing.
Option Two: Purchasing the Business Assets
In an asset purchase, the buyer typically forms or uses a separate legal entity to purchase specifically identified assets from the seller’s company.
Depending on the business, those assets may include:
Equipment, furniture, and inventory;
Customer lists and business records;
Telephone numbers, websites, and domain names;
Intellectual property;
Trade names and fictitious names;
Assignable contracts;
Leasehold rights;
Goodwill; and
Other assets necessary to continue operating the business.
The buyer may also agree to assume certain specifically identified obligations. Any liability that the buyer intends to assume should be clearly described in the purchase agreement.
An asset purchase often allows the buyer to be more selective about what it is acquiring. However, purchasing assets does not automatically protect the buyer from every prior obligation of the seller.
For example, Florida law may impose liability on a purchaser acquiring more than 50% of a business or its assets for certain unpaid state taxes, subject to statutory requirements and limitations. The Florida Department of Revenue recommends that a purchaser verify the seller’s tax status and consider withholding or escrowing sufficient funds to address potential liabilities before completing the purchase. Florida Department of Revenue and Florida Statutes § 213.758.
What Exactly Is Included in the Sale?
One of the most common problems in a business acquisition is the failure to define the purchased assets with enough specificity.
A reference to “all business assets” may not adequately address:
Cash and accounts receivable;
Security deposits;
Prepaid expenses;
Vehicles;
Software accounts;
Social-media accounts;
Customer deposits;
Work in progress;
Intellectual property;
Personal property used by the business but owned individually by the seller; or
Assets subject to leases or financing arrangements.
The parties should also identify all excluded assets. If the seller intends to retain certain cash, receivables, equipment, or personal property, the agreement should say so expressly.
A detailed asset list or schedule can help prevent disagreements at closing.
Does the Business Name Automatically Transfer?
Not necessarily.
A business may operate under a fictitious name or “DBA” that differs from its legal entity name. The parties should determine who currently owns the fictitious-name registration and what filings will be necessary for the buyer to operate under that name.
Florida explains that a fictitious-name registration primarily gives public notice of the person or entity operating under the name. Registration alone does not create ownership rights in the name or prevent someone else from using it. Florida Division of Corporations.
The purchase documents should separately address the seller’s rights in the trade name, related branding, logos, domain names, and other intellectual property.
Contracts and Licenses Require Special Attention
A buyer should not assume that the seller’s contracts automatically transfer with the business assets.
Customer agreements, vendor contracts, leases, and franchise agreements may:
Prohibit assignment;
Require the other party’s written consent;
Allow termination following a sale; or
Treat a change in ownership as an assignment.
Governmental and professional licenses may also be specific to the seller or the seller’s existing entity. Some licenses may require a new application, regulatory approval, or advance notice before the buyer can operate the business.
These issues should be investigated during the due-diligence period—not after the transaction has closed.
Due Diligence Is More Than Reviewing Revenue
Financial statements and tax returns are important, but they do not tell the entire story.
A prospective buyer should generally investigate:
How the seller calculated revenue and expenses;
Whether claimed “add-backs” are legitimate;
Existing liens against the seller or purchased assets;
Ownership and condition of the equipment;
Employee and independent-contractor arrangements;
Insurance coverage and claims history;
Material customer and vendor contracts;
Required permits and licenses;
Pending litigation or disputes;
Sales, payroll, and other tax obligations; and
Whether the business depends heavily on the seller’s personal relationships.
A profitable-looking business may become far less attractive if its revenue cannot be verified, its equipment is financed, its major contracts cannot be assigned, or its operations depend almost entirely on the departing owner.
The Purchase Agreement Should Match the Transaction
The purchase agreement should clearly state whether the buyer is acquiring the company itself or selected business assets.
It should also address:
The purchase price and payment structure;
The assets included and excluded;
The liabilities assumed and excluded;
Due-diligence requirements;
Conditions that must be satisfied before closing;
Seller representations and warranties;
Indemnification obligations;
Required third-party consents;
Treatment of employees and existing contracts;
Noncompetition and nonsolicitation obligations, when appropriate; and
The documents and funds required at closing.
Other closing documents may include a bill of sale, assignment of contracts, intellectual-property assignment, restrictive-covenant agreement, seller financing documents, resolutions, consents, and an updated fictitious-name registration.
The Bottom Line
Buying a company and buying its assets are not the same transaction.
An equity purchase may offer greater continuity, but it may also expose the buyer to the company’s historical obligations. An asset purchase may allow the buyer to select what it wants to acquire, but it still requires careful due diligence and properly drafted documents.
Before agreeing on a price or signing a contract, the parties should determine the structure of the transaction, identify what will transfer, investigate potential liabilities, and confirm that the buyer will be legally able to operate the business after closing.
If you are considering purchasing or selling a Florida business, contact me to help you identify potential issues before they become expensive problems.
This article is for general informational purposes only and does not constitute legal advice. Every business transaction is different, and you should consult with an attorney regarding your particular circumstances.
