How to ensure business has no existing liens?

November 05, 2024

by a searcher from University of Pennsylvania - The Wharton School in Denver, CO, USA

I'm considering buying a business with a mix of personal funds and seller financing. The purchase will be an equity purchase (to prevent having to resign the outstanding non-transferable contracts associated with the business). Any recommendations on 1/ how to identify the existing liens on the business and 2/ ensure that there are no existing liens at the time of closing (e.g. is there something similar to title insurance that one gets when buying a house but for a business?).

Reply by a professional
from Villanova University in West Chester, PA, USA

^redacted‌ That’s a part of the legal due diligence, deal term structuring and negotiation process your legal team provides. There’s representation and warranty insurance if the deal is big enough to warrant it. There’s no guarantee, but there’s plenty that can be done to reduce the risk. I also have a great podcast episode on this on Dealmaking with Laura DiFrancesco. I’d be happy to discuss this further or provide legal assistance if needed.

Reply by a searcher
from Emory University in Tucson, AZ, USA

1) Evaluate an F-reorganization with your advisors as it might provide benefits you seek and there are tax advantages. 2) A UCC search can be conducted but not all lenders make UCC filings. 3) While not perfect, understanding every payout in the firm's books might uncover things as varied as debt payments, copier leases, etc.

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