Standing up the entity and the bank accounts

The short version

• Most buyers form a new company, often an LLC, to own the business they buy.
• Form it early. The lender, the purchase agreement and the insurance all need its name.
• You will also need a federal tax ID, bank accounts, payroll, state registrations and licenses in the new company's name.
• Your M&A attorney and CPA should set it up together. The choice affects taxes and liability.
• Start in week one of due diligence. Several steps take longer than buyers expect.

Why a new company

A new company keeps the business's debts and obligations separate from your other affairs, although your personal guarantee still applies to the loan. Lesson B2.4 covers guarantees. In an asset purchase, the new company is the buyer. In a purchase of the company, it may hold the shares.

Choosing the type

The most common choices are a limited liability company, or LLC, and a corporation. Each is taxed differently, and an LLC can choose how it is taxed. Your CPA and attorney will recommend one based on your situation, the deal structure and your lender's requirements.

The checklist

Legal

• Form the company with your state's business filing office.
• Prepare an operating agreement or bylaws, especially if you have partners.
• Appoint a registered agent.
• Register in any other state where the business operates.

Tax

• Get a federal employer identification number, or EIN, from the IRS.
• Register for state tax accounts: income tax withholding, unemployment insurance and sales tax, if the business collects it.

Banking

• Open operating and payroll accounts at a bank. Your lender may want them at their bank.
• Arrange payment processing if the business takes cards.

Operations

• Set up payroll, so employees are paid on time after closing.
• Apply for licenses and permits in the new company's name. Lesson B7.5 covers this.
• Arrange insurance to start at closing.
• Transfer utilities, phone numbers, website and online accounts.