When a seller agrees to finance the purchase of his ecommerce business, the question becomes how do you structure it in a way that favors you as a buyer without killing the deal?
One common method is to use a promissory note that calls for a series of monthly payments until the balance of the purchase price is paid in full. And if the seller is unsophisticated, you may be able to have the note signed by your buying entity (e.g., LLC) without also providing a personal guaranty on the note.
Now without being paid in full, it’s unlikely the seller will be willing to transfer all of the business assets at closing even with a personal guaranty on the promissory note.
So, it’s likely that some key assets will not be transferred until the full purchase price is paid.
Yet, as the buyer, you don’t want to assume the risk that the seller is unable or unwilling to transfer those assets after the final payment.
The common solution for this issue is for the assets to be held in escrow by a third party (the escrow agent) and released to you as the purchaser after all payments are made. And if the full purchase price isn’t paid, the seller can demand the return of these key assets by the escrow agent.
If you need help buying or selling an online business, chances are it’s time to set up a phone consultation with Internet Business Lawyer Mike Young.
