Buying or selling a business in Florida requires more than agreeing on a price. The structure of the transaction determines which assets and liabilities transfer, how taxes may apply, what approvals are required, and how the parties are protected after closing.
These issues should be addressed before the parties sign a letter of intent. KEW® Legal helps Florida business owners, buyers, and investors evaluate proposed transactions, negotiate purchase agreements, and prepare for closing.
Key Takeaways
- Choosing between an asset purchase and an equity purchase affects taxes, liabilities, contracts, and the buyer’s control of the business.
- Florida tax clearance, working capital adjustments, and properly structured escrow provisions can reduce financial risk after closing.
- Reviewing ownership documents, contracts, financial records, and regulatory obligations before signing can prevent delays and costly disputes.
Should You Use an Asset Purchase or an Equity Purchase?
Most Florida business sales are structured as either an asset purchase or an equity purchase.
In an asset purchase, the buyer acquires specific assets, such as equipment, inventory, contracts, intellectual property, customer relationships, and goodwill. The buyer may also agree to assume certain liabilities.
In an equity purchase, the buyer acquires the ownership interests in the company. The business continues operating through the same legal entity, with its existing contracts, employees, assets, debts, and legal history.
Buyers often prefer asset purchases because they can define what they are purchasing and limit the liabilities they assume. Sellers may prefer equity purchases because they can transfer the entire company without retaining an entity that must later be dissolved.
The right structure depends on the company’s contracts, licenses, tax position, liabilities, ownership documents, and the parties’ plans after closing.
Is an Asset Purchase Subject to Florida Sales Tax?
An asset purchase does not automatically create a 6% sales tax on every piece of equipment included in the transaction.
Florida law excludes certain occasional or isolated sales from the definition of taxable business activity. A sale of operating assets completed as part of the sale of a business may qualify for this treatment, depending on the transaction. Inventory, motor vehicles, boats, aircraft, and certain other assets may be treated differently.
The purchase agreement should allocate the price among categories such as:
- Inventory
- Furniture and equipment
- Vehicles
- Intellectual property
- Restrictive covenants
- Goodwill
- Other intangible assets
The allocation affects the parties’ federal and state tax reporting. When goodwill or going-concern value is part of an asset acquisition, both the buyer and seller may also need to report the allocation on IRS Form 8594.
The parties should agree on the allocation before closing and use consistent figures in their tax filings.
Can a Buyer Become Responsible for the Seller’s Florida Taxes?
Yes. Purchasing assets does not always prevent the buyer from becoming responsible for taxes owed by the seller.
Under Florida law, a buyer that acquires more than 50 percent of a business, its assets, or its stock of goods may be liable for certain unpaid taxes arising from the seller’s operation of the business.
The purchase agreement should establish a clear process for obtaining tax clearance. Depending on the circumstances, the buyer may require:
- A certificate or receipt from the Florida Department of Revenue
- Final tax returns and proof of payment
- A tax escrow or purchase-price holdback
- Authority to pay unresolved taxes from the withheld funds
- A seller indemnity for pre-closing tax obligations
An indemnity alone may provide limited protection if the seller distributes the proceeds or lacks the resources to satisfy a later claim. Holding funds in escrow can give the buyer a practical source of recovery.
This issue should be included in the buyer’s legal due diligence risk assessment before the closing date is set.
What Should Buyers Review in a Florida LLC Operating Agreement?
A buyer purchasing an interest in a Florida limited liability company should review the company’s operating agreement before signing the letter of intent.
The operating agreement should be reviewed for:
- Restrictions on transferring membership interests
- Member or manager approval requirements
- Rights of first refusal
- Buy-sell provisions
- Valuation procedures
- Voting thresholds
- Dissociation provisions
- Rights granted to minority owners
- Requirements for admitting a new member
Anyone researching how to buy an existing business should confirm that the seller has the authority to complete the transaction. A minority owner, manager, lender, or other third party may have approval rights that must be satisfied before closing.
How Is Working Capital Handled at Closing?
A working capital adjustment helps make sure that the business has enough short-term assets to continue operating after the sale.
The parties usually establish a target based on the company’s historical working capital. At closing, the actual amount is compared with that target.
The purchase agreement must clearly define:
- Which current assets are included
- Which current liabilities are included
- How doubtful accounts receivable are treated
- Whether cash is included or excluded
- How inventory is valued
- Which accounting principles apply
- How disputes will be resolved
The definitions matter as much as the target. Receivables that are unlikely to be collected should not increase the amount credited to the seller.
How Can the Purchase Agreement Protect the Buyer and Seller?
The definitive purchase agreement assigns responsibility for known and unknown risks. Common provisions include earn-outs, escrows, indemnity baskets, and liability caps.
Earn-Outs
An earn-out makes part of the purchase price dependent on the company reaching agreed performance targets after closing.
Earn-outs can help the parties resolve a valuation disagreement, but the agreement must define the applicable revenue, profit, customer-retention, or operational targets. It should also address how the buyer may operate the business during the earn-out period.
Escrows and Holdbacks
An escrow or holdback reserves part of the purchase price for identified liabilities or potential indemnification claims.
A specific escrow may be appropriate when due diligence identifies a tax audit, unresolved litigation, customer dispute, regulatory issue, or other risk that cannot be resolved before closing.
Indemnity Baskets
An indemnity basket establishes the amount of losses the buyer must incur before seeking reimbursement from the seller.
The agreement should specify whether the buyer can recover only losses above the threshold or all covered losses after the threshold is reached.
Liability Caps
A liability cap limits the seller’s total exposure for certain claims after closing.
Different caps may apply to general contractual claims, taxes, ownership of the equity, fraud, confidentiality obligations, and other fundamental representations. The agreement should not treat every type of breach the same way.
What Should the Letter of Intent Include?
A letter of intent should address:
- Whether the transaction is an asset or equity purchase
- Which assets and liabilities are included
- The proposed purchase-price allocation
- Payment terms and seller financing
- Working capital adjustments
- Earn-out terms
- Exclusivity
- Due diligence access
- Required approvals
- Closing conditions
- Confidentiality
- Responsibility for transaction expenses
The LOI is usually nonbinding except for specific provisions, but it establishes the direction of the transaction. Important deal terms become more difficult to renegotiate after the parties have invested time and money in due diligence.
What Should a Buyer Review Before Purchasing a Florida Business?
The scope of due diligence depends on the company, industry, and transaction structure. A buyer may need to review:
- Corporate and ownership records
- Financial statements and tax returns
- Contracts and customer relationships
- Employment and benefit obligations
- Intellectual property
- Real estate and equipment
- Licenses and regulatory compliance
- Pending or threatened litigation
- Environmental conditions
- Insurance coverage
- Cybersecurity and data privacy
- Existing debt and liens
- State and local tax compliance
Reviewing the relevant types of due diligence helps the buyer confirm the value of the company and identify issues that should be resolved through a price adjustment, escrow, indemnity, or closing condition.
Can a Buyer Recover Money if the Seller’s Statements Were False?
The buyer’s remedies depend on the representations, warranties, indemnification provisions, survival periods, and recovery sources included in the purchase agreement.
If the agreement includes an indemnity escrow, the buyer may be able to submit a claim against funds held after closing. Without an escrow or holdback, the buyer may need to pursue the seller directly.
Effective mergers and acquisitions negotiations identify the most important representations, determine how long they remain enforceable, and establish how valid claims will be paid.
When Should You Contact a Florida M\&A Attorney?
Buyers and sellers should involve counsel before signing a letter of intent, accepting a deposit, or agreeing to the structure of the transaction.
A Florida M\&A attorney can help evaluate the proposed structure, review ownership documents, coordinate due diligence, negotiate the purchase agreement, address tax-clearance procedures, and prepare the transaction for closing.
Early legal review gives the parties more flexibility to resolve problems before they threaten the sale.
Speak With a Florida Business Lawyer Before Closing
The terms established at the beginning of a business sale can affect the parties long after the transaction closes. Buyers and sellers should evaluate the deal structure, tax exposure, assumed liabilities, working capital requirements, indemnification terms, and required approvals before committing to the transaction.
KEW Legal® represents business owners, buyers, sellers, and investors throughout Florida mergers, acquisitions, and business sales. With offices in Coral Gables and Sunny Isles, the firm can assist with due diligence, letters of intent, purchase agreements, transaction negotiations, and closing requirements.
Contact KEW® Legal to discuss the legal structure of your proposed Florida business transaction.
