Acquiring a sole proprietorship

October 11, 2024

by a searcher from Duke University in Savannah, GA, USA

Hi Searchfunder community,

I have a potential acquisition opportunity with a healthcare business that is a sole proprietorship -- the owner has not set up an entity and the contracts (including with government payers) are in the seller's name. I have several early questions that I would love to talk to experts in this community about.

1. From a legal perspective: Is it possible to acquire a sole proprietorship, and what exactly am I acquiring? Is it not technically an acquisition, but a payment we make to the owner if the contracts, accounts, know-how, etc. are transferred to us?

2. From a tax perspective: Are the tax consequences different for the seller, compared to if he had an LLC or LLC taxed as S Corp? Will there be goodwill that I can still depreciate? The seller wants to give part of the proceeds to some key employees. What would be the most tax beneficial way to do that?

3. From an SBA perspective: Can I get an SBA 7(a) loan to buy a sole proprietorship? Is there anything above and beyond the normal diligence that banks will ask for?

Thank you in advance for your help!
Felix

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

For questions 1 & 2 you would need to consulate with an attorney and/or tax accountant. However, on the SBA question, yes, you can buy a sole proprietorship using SBA funds. I think the biggest question you are going to run into if it is a medical business is the licensing and maintaining that licensing. Also if there is a change in ownership on a medical practice with insurance company billings, it can take a while to get those contracts changed and the billing flowing to a new entity. You would need to register that new entity with each of the insurance companies. So it is not without some difficulties. I would be happy to jump on a call to discuss. You can reach me here or directly at redacted

Reply by a lender
from University of Missouri in Denver, CO, USA

Agree with what Brad said. It is definitely allowed per SBA. Let me know if you would like to discuss.

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