Buying a Business in New Jersey: Legal Due Diligence Checklist

© 2024 Ibrahim Ahmed Law Group, P.C. All rights reserved. Original content — unauthorized reproduction prohibited.

Buying a business — whether a restaurant, a dealership, a professional practice, or any other going concern — is one of the most significant financial decisions you will make. Unlike buying a product, you are acquiring not just assets but also relationships, obligations, and potential liabilities. Thorough legal due diligence is essential to understanding what you are actually buying.

Corporate and Entity Documents

• Certificate of formation/incorporation and all amendments
• Operating agreement or bylaws and all amendments
• Ownership records (membership certificates, stock certificates, cap table)
• Minutes of all member/shareholder/board meetings for the past 3–5 years
• Any existing buy-sell agreements, shareholder agreements, or voting agreements
• Good standing certificate from the NJ Division of Revenue

Contracts and Agreements

• All material contracts (customer contracts, supplier agreements, distribution agreements)
• Leases (real property and equipment)
• Employment agreements and non-compete agreements
• Independent contractor agreements
• Loan agreements and security agreements
• Any contracts with change of control provisions (these may require consent to assignment)

Financial and Tax Records

• Audited or reviewed financial statements for the past 3–5 years
• Federal and state tax returns for the past 3–5 years
• Accounts receivable and accounts payable aging schedules
• Any outstanding tax liens or assessments
• NJ Division of Taxation clearance certificate (required for asset purchases)

Litigation and Regulatory

• All pending and threatened litigation
• Any regulatory investigations or enforcement actions
• OSHA, EPA, or other regulatory compliance history
• Any consent orders or settlement agreements

Intellectual Property

• Trademarks, service marks, and trade names
• Domain names and social media accounts
• Proprietary software and technology
• Trade secrets and confidential information

Employees and Benefits

• Employee roster with compensation and benefits
• Employment agreements and non-compete agreements
• Any pending employment claims (discrimination, wage and hour, etc.)
• Employee benefit plans (health insurance, retirement plans)
• Workers' compensation claims history

Asset Purchase vs. Stock Purchase

One of the most important decisions in any business acquisition is whether to structure the deal as an asset purchase or a stock/membership interest purchase.

Asset purchase: You buy specific assets of the business (equipment, inventory, customer lists, goodwill) and generally do not assume the seller's liabilities. This is typically preferred by buyers.

Stock/membership interest purchase: You buy the seller's ownership interest in the entity, which means you acquire all of the entity's assets and liabilities — including unknown and contingent liabilities. This is typically preferred by sellers for tax reasons.

The structure has significant tax, liability, and practical implications and should be determined with input from both legal and tax counsel.

This article is for general informational purposes only and does not constitute legal advice.