Buying a restaurant, bar, or similar establishment with decades of history can be a rewarding opportunity, but it also comes with unique risks. From hidden tax liabilities to old operational issues, these factors can significantly impact the deal. For many buyers, structuring the transaction as an asset sale rather than a stock or equity sale is a smart way to manage these risks. However, it’s not without its challenges.
Let’s explore the benefits and trade-offs of an asset sale in these types of acquisitions.
Why Asset Sales Are Common in Acquisitions of Restaurants, Bars, and Similar Establishments
When a buyer opts for an asset sale, they are purchasing specific assets of the business rather than the company itself. This structure allows buyers to selectively acquire valuable assets—like equipment, inventory, and goodwill—while leaving behind unwanted liabilities.
For establishments like restaurants and bars, this is particularly important because:
1. Liabilities Can Linger
Businesses in this industry that have been in operation for decades may have unresolved issues, such as:
• Unpaid Taxes: Department of Revenue or IRS claims for unpaid sales or payroll taxes.
• Labor Disputes: Misclassified employees or wage claims from years past.
• Health Code or Regulatory Violations: Historical issues that could resurface with inspections.
2. Avoiding Unknown Risks
By purchasing only the assets, the buyer can leave behind potential risks tied to the seller’s legal entity, such as lawsuits, regulatory penalties, or supplier disputes.
Challenges with Asset Sales
While an asset sale offers a degree of protection, it’s not without its downsides.
1. Permitting and Licensing Interruptions
Restaurants, bars, and similar establishments often require numerous permits and licenses, including health department approvals, liquor licenses, and business registrations. Transferring these to a new owner—or reapplying under a new entity—can lead to delays or operational interruptions.
2. Contracts May Not Transfer Easily
Key supplier agreements, leases, or franchising contracts might not automatically transfer in an asset sale. Buyers need to negotiate these transitions carefully to avoid disruptions.
3. Tax Implications
Asset sales can have different tax consequences for buyers and sellers. For example, the buyer may benefit from asset depreciation, but the seller may face higher tax liabilities on the sale proceeds.
Balancing the Trade-Offs
In every deal, the structure should align with the buyer’s goals and risk tolerance. While an asset sale can help limit liability exposure, it’s essential to carefully evaluate:
• Permitting Feasibility: Are the necessary licenses and permits transferable or easily reissued?
• Key Relationships: Will key suppliers, landlords, or franchisors agree to transfer agreements?
• Due Diligence Results: Are there specific liabilities that make an asset sale the safer route?
How Legal Guidance Helps
Navigating the complexities of a restaurant, bar, or similar establishment acquisition requires careful planning and negotiation. From structuring the deal to ensuring compliance with licensing requirements, having experienced legal counsel can make all the difference.
At Recalde Law Firm, P.A., we work closely with buyers to evaluate risks, structure deals, and negotiate terms that protect your interests. Whether you’re acquiring your first establishment or expanding your portfolio, we’re here to guide you every step of the way.
Thinking about buying or selling a restaurant, bar, or similar business? Let’s talk. Contact Recalde Law Firm, P.A., today.
