Business Acquisition - What's the best way? (Legally speaking)

[babuji]

I'm looking to purchase an existing business and as far as I know, there are two separate ways to approach this. I was wondering if there is one option that is better than the other, in terms of legal circumstances.

Option 1) Purchase a business by taking over as the president in the existing business, hence making the buyer the owner of the business.

Option 2) Create a separate legal entity and then take over the existing business.

With option 1, I believe that in doing so, the buyer would take on responsibility of any debts, lawsuits and accounts receivables for the existing company.

With option 2, there's going through the entire process of setting up a business entity (I've never done that before), so does anyone have an idea as to how much work that requires? Or if there's any tax benefits that come along with purchasing a biz, by creating a new legal entity?

Your thoughts appreciated.

[CStrunk]

Creating a separate legal entity would most likely be the more expensive route because of the additional fees you'd incur. However, you would not be personally responsible for the debts, so they wouldn't be able to come after your house if you can't make the business payments. I'm not an attorney though.

You'll definitely want to invest in a good lawyer who can guide you through the process. There are probably a lot of other variables included that he or she would have experience with. You'll also want a good accountant to give you tax advice. (Or maybe a CPA with a JD would be a good combo deal.)

I forgot where I read it, but a professional lawyer and accountant will be the entrepreneur's most valuable asset.

[hotwired]

I echo the liability part. If you simply buy the company's "stock" (option 1), you are assuming all assets PLUS all liabilities. I'm only assuming, but I believe you'd also be liable for any lawsuits, etc. that may be "in the works" or even not YET in the works. Not sure on this, but I've definitely read these things. For the "simple man", it's usually recommended to just buy the "stuff and the clients" from the existing company and make it your own.