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Free buyer resource · Business formationSet up your buying entity
Why many buyers form an LLC or corporation before closing, and the simple steps to get it done in time.
Free guide · No fees for buyersMany buyers form a new LLC or corporation to own the business they acquire. It can separate business liabilities from personal assets, and lenders often expect it. To set one up, choose a state and structure, file formation documents with the state, appoint a registered agent, get a free EIN from the IRS, sign an operating agreement and open a business bank account before closing.
The entity that signs the purchase agreement, takes the loan and holds the licences is usually not you personally but a company you set up for the purpose. Getting it ready early stops it from holding up closing.
This free guide covers the basics for US buyers. Tax treatment and the best structure depend on your situation, so check with an accountant or attorney before you file.
How to do it
Choose a structure
An LLC is the most common choice for small acquisitions because it is simple to run and offers liability protection. Some buyers choose an S corporation election or a corporation for tax or investor reasons.
Pick the state
Most buyers form the entity in the state where the business operates. Forming elsewhere usually means registering as a foreign entity in the operating state as well.
File formation documents
File articles of organisation (for an LLC) with the state. State filing fees vary widely. A formation service such as Bizee can handle the filing and registered agent for you.
Get an EIN and bank account
Apply for a free Employer Identification Number from the IRS, then open a business bank account in the company's name to receive the loan and pay the seller.
Sign an operating agreement
Set out who owns the company, how decisions are made and what happens if an owner leaves. It is essential if you have partners or investors.
Line up licences and insurance
Confirm which licences and permits must be in the new entity's name, and arrange insurance to start on the closing date.
Options compared
| Structure | Why buyers choose it | Things to know |
|---|---|---|
| LLC | Liability protection, simple administration | Default tax treatment depends on number of members |
| LLC taxed as S corp | Possible payroll tax savings for owner-operators | Extra payroll and filing requirements |
| C corporation | Suits outside investors and larger deals | Corporate tax plus tax on dividends |
| Buying in your own name | Quick, no filing | No liability separation; lenders rarely prefer it |
General information only. Figures and rules vary by deal, lender and location.
Common mistakes
- Leaving formation until the week of closing, which delays bank accounts and loan documents.
- Forming in a different state without registering in the operating state.
- Mixing personal and business money after closing.
- Forgetting to transfer licences and permits to the new entity.
Frequently asked questions
Do I need an LLC to buy a business?
It is not always required, but most buyers use one, and lenders and sellers often expect the buyer to be a company rather than an individual.
When should I form my LLC?
Ideally soon after your letter of intent is signed, so the entity, EIN and bank account are ready for loan documents and closing.
How much does it cost to form an LLC?
State filing fees vary widely by state, and there may be annual report fees. Formation services charge their own fees on top for filing and registered-agent service.
Can I use an existing company to buy a business?
Yes, but many buyers prefer a new entity so the acquired business's liabilities stay separate from their other activities. Ask your attorney.
Is an EIN free?
Yes. The IRS issues EINs free of charge online.
Should I choose an LLC or S corp?
An S corp is a tax election, not a separate entity, and can be made by an LLC. Whether it makes sense depends on your income and costs, so speak to an accountant.
Ready to move forward?
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BusinessBuy.site provides free educational information, not legal, tax, lending or investment advice. Speak to a qualified accountant, attorney or lender about your deal.