[in Vietnamese, Tiếng Việt]
Are you considering purchasing a retail business, or do you have an existing storefront business that you want to sell? Before you take this big step in becoming an entrepreneur or cashing out of your existing business, there are many important decisions you must make to maximize your investment and enhance your success.
Many clients come to us after having already bought or sold a retail business. When we ask them for a written agreement that outlines the terms of the purchase and sale, we often learn that these deals have been done without anything in writing, based solely on trust between the parties through oral agreements. While an oral agreement can be acceptable when everything goes well, they are not generally enforceable in North Carolina regarding the purchase and sale of merchandise or equipment of high dollar value, and are highly susceptible to disagreements about what was actually said or agreed upon. Also, clients often learn only too late that there are other issues that they never considered in making their purchase or sale, such as who pays the landlord for past-due rent or fees, or who is responsible for securing the buyer’s new lease or lease assignment.
Lack of planning for these and other important aspects of the purchase or sale of a storefront business can result in a number of serious problems or concerns that could impact the success of your new business or your exit from business ownership. For example, we have had clients who bought a business without a written agreement, and then learned that there was a substantial past-due rent amount that must be paid before the landlord will give them a lease or lease assignment. This problem can be addressed by having a written agreement in which the seller warrants that there are no outstanding debts at the time of sale, and agrees to be responsible for any such debts when they are discovered. It is also best for a buyer of a retail business to establish contact directly with the landlord prior to completing the purchase of the business to confirm the landlord’s requirements for lease or lease assignment, obtain the landlord’s approval for lease or lease assignment, learn whether any account balance exists, and to clearly understand the landlord’s requirements regarding repairs, additional rent and fees, permitted usage, signage, and other aspects of the commercial lease that could impact business operations. 
We normally recommend that the buyer purchase the substantial assets of the business rather than the business itself. This means setting up your own company (either a limited liability company or a corporation, which we can also assist to setting up) to purchase the equipment, fixtures, possibly the name, and lease rights or lease assignment from the seller’s company. Purchasing the assets of a business in this way can provide important protections against liabilities that belong to the seller’s business. In buying the assets, a buyer should also obtain a warranty from the seller that there are no liens or encumbrances on the business property that is being purchased, such as unpaid business property taxes or Uniform Commercial Code filings that would allow a creditor to seize the property to satisfy the seller’s debts.
Sellers should seek to minimize their future obligation to the landlord under the lease. Many times, we find that landlords are reluctant to terminate a seller’s existing lease and initiate a new lease for the buyer, instead requiring that the seller pay a lease assignment fee and remain responsible for payment and other tenant duties under the lease should the buyer fail to do so. I have seen some sellers who very creatively asked for more money from the buyer due to this continuing responsibility that leaves these sellers at risk for the full term of the lease. Another (possibly better) solution, however, is for a seller to require the buyer to indemnify against any legal action by the landlord under the lease, meaning that if the seller is sued for nonpayment or other failure to perform, the buyer covers legal costs and pays any resulting judgment the landlord gets against the seller. For both buyers and sellers, having a clear and complete written list of all property included in the sale can also be invaluable in avoiding disputes. If a buyer is going to pay for the business assets over time, a seller should further consider having the buyer sign a promissory note and, if possible, get the buyer to pledge some other valuable property as collateral if this debt is not fully, and timely, paid.
While the adventure of becoming an entrepreneur and running a storefront business, or cashing out of a business you now own can be personally rewarding and profitable, it is important to avoid the pitfalls of purchasing or selling a business without experienced legal advice and proper documentation in writing. Whether you are a buyer or a seller of a storefront business, it is important to protect your investment through a written asset purchase agreement that clearly outlines what exactly is being sold, how it is being paid for, what each party’s responsibilities are regarding the various costs of the transaction, how the buyer’s lease or lease assignment will be obtained, how debts or later obligations will be paid for, and who will be legally responsible to third parties, such as to the landlord for issues that arise under the lease.
The attorneys at the Tran Law Firm are experienced in assisting existing business owners and prospective business buyers with preparing, negotiating, and reviewing business asset purchase agreements, commercial leases, promissory notes, and other key documents needed in a business asset purchase deal, and in enforcing these agreements through litigation when necessary to protect clients’ rights. If you need skilled legal counsel regarding the purchase or sale of a business, please contact the Tran Law Firm today to schedule a consultation.
By Christopher C. Peace, Esq.
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