Should You Buy An Online Business’ Equity?

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Should You Buy An Online Business’ EquityWhen you’ve decided to purchase an existing e-commerce business, should you purchase the company’s equity (corporate shares, member equity interests, etc.)? As a general rule, it rarely makes sense to buy an online business’ equity when you’re acquiring it. Most deals are asset purchases instead of buying equity.

Here’s why…

First, with the transfer of equity, you also get the company’s existing and potential liabilities. Even with due diligence prior to closing, you can still end up having bought a pig in a poke…lawsuits, tax judgments, etc.

Second, a seller will often want to retain their entity and some assets unrelated to the sale of the business you’re purchasing. For example, the seller may have an e-commerce venture that’s in a different niche but owned by the same entity…and that won’t be part of your deal. In fact, smart sellers often hide their unrelated online ventures so that buyers don’t even know about them.

Of course, there are rare exceptions to the general rule. For example, if the primary asset of the online venture is the seller’s email lists, it may make sense to buy the entity’s equity instead of the lists themselves. Why? Because email subscribers opted-in to receive messages from one entity…they didn’t give a second entity permission to email them.

Even if an email autoresponder service lets an asset purchaser assume control of the seller’s email lists, chances are the buyer’s sending of emails to the lists violates federal and/or state laws because there was no consent by the recipients. What was perfectly legal for the seller to send becomes unsolicited commercial email (spam) when sent by the buyer.

These are just a few of the issues you’ll want to discuss with your Internet business lawyer as you explore the best way to acquire an e-commerce business. Just don’t assume that you can buy an online business’ equity without there being some significant legal risks that should be minimized as part of structuring the deal.

How to Buy an Internet Business

By | Internet Lawyer, Website Lawyer, Website Legal Documents | No Comments
buy an internet business

Should you buy an Internet business?

When you buy an online business, as a general rule, you will probably want to purchase the company’s assets rather than the owners’ equity (corporate stock, LLC membership equity interests, etc.).

Why?

Assets you may want to buy include the domain name, website content, client lists, and software.

Why purchase an Internet business’ assets?

Although an equity purchase might be easier from a paperwork standpoint, you also assume many potential legal risks by stepping into the shoes of the seller(s). For example, you do not want to clean up a mess if the seller’s company hasn’t observed corporate formalities or engaged in shady behavior.

In contrast, buying the assets of an Internet business (and placing them in your own business entity) reduces these risks. Let the seller(s) worry about any problems with their business entity rather than selling those potential liabilities to you.

Of course, there may be different tax consequences to a hard asset purchase than an equity purchase.

For this reason, when you buy an Internet business, you’ll want to work with your Internet lawyer and your accountant to structure the deal to protect you both from legal risks and unnecessary tax liabilities.

Update – How to Buy an Internet Business: 12 Steps to Owning Your Own eCommerce Company

Since this article was first posted, I’ve written a book that reveals in 12 simple steps how you can buy an Internet business. It’s available in paperback and Kindle ebook formats at Amazon.com.