Buying an existing business can be one of the smartest moves an entrepreneur makes. Instead of building from nothing, you acquire established revenue, an existing customer base, trained employees, supplier relationships, and a brand that already has a place in the market. The hard early work is done. That is the appeal, and it is real.

The risk is just as real. When you buy a business, you are not only buying its strengths. Depending on how the deal is structured, you may also be buying its debts, its liens, its unpaid taxes, its pending lawsuits, its broken contracts, and its regulatory problems. Some of those liabilities sit quietly on the balance sheet. Others do not appear anywhere until they land on your desk after closing, when the seller has been paid and moved on. The entire purpose of legal due diligence and a carefully drafted purchase agreement is to make sure that what you are paying for is what you are actually getting, and that the seller’s old problems stay with the seller.

This guide walks through how to buy a business in Maryland step by step, from defining your criteria through closing and the work that follows. It explains the critical choice between an asset purchase and a stock purchase, the due diligence that protects you, the Maryland tax traps that catch unprepared buyers, and the contract terms that shift risk back toward the seller. It is written for buyers in Maryland, where Iqbal Business Law handles business acquisitions, and the same framework applies to buyers across the region.

If you are on the other side of the table, our companion guide on asset sale versus stock sale for Maryland business sellers covers the same transaction from the seller’s perspective.

Before anything else, you and the seller have to agree on the basic shape of the transaction. Almost every small business purchase is structured one of two ways, and the choice drives the tax treatment, the liability you take on, and the complexity of the closing.

In an asset purchase, you buy specific assets of the business: equipment, inventory, customer lists, intellectual property, goodwill, and whatever else the parties identify. You generally assume only the liabilities you expressly agree to assume, which means many of the seller’s debts and obligations stay behind with the old entity. For tax purposes, an asset purchase usually gives the buyer a stepped-up basis in the acquired assets, which can produce valuable depreciation and amortization going forward. For these reasons, buyers usually prefer asset deals.

In a stock purchase (for a corporation) or a membership interest purchase (for an LLC), you buy the ownership of the entity itself. The entity keeps operating with all of its assets, but also with all of its liabilities, including liabilities that may not show up on any balance sheet, such as undisclosed claims, unpaid taxes, or contingent obligations. The advantage is continuity: the entity keeps its contracts, licenses, permits, and tax identity, which matters when those things are difficult or impossible to transfer. Sellers usually prefer this structure, in part because of more favorable capital gains treatment on the sale.

If the entity you are buying is an LLC, you will also need to address its operating agreement. In a membership interest purchase, the operating agreement usually needs to be amended or replaced to reflect the new ownership, and you will want to understand any transfer restrictions, consent requirements, or buy-sell provisions before you commit.

Before you tour a single business, get specific about what you are looking for: the industry, the size, the price range, the location, your financing capacity, and how much of the day-to-day operation you intend to run yourself. Clear criteria keep you from chasing deals that do not fit and help you evaluate the ones that do.

Once you identify a target and the seller is willing to share information, the first document is almost always a confidentiality agreement, also called a non-disclosure agreement or NDA. The seller will not, and should not, hand over financial statements, customer lists, contracts, and tax returns without a binding promise that you will keep that information confidential and use it only to evaluate the deal. For you as the buyer, the NDA is also a chance to confirm that you can use the information you gather to conduct real due diligence.

This is also the moment to assemble your team. A business purchase typically involves a business and tax attorney, a CPA or accountant, and often a lender and an insurance advisor. Bringing them in early, before you are emotionally committed to a specific business, is far more valuable than calling them after you have already shaken hands on a price.

Once you and the seller agree on the broad strokes, the next step is usually a letter of intent (LOI), sometimes called a term sheet. The LOI is the roadmap. It states what the parties intend to put into a binding purchase agreement and gives both sides a shared understanding before they invest time and money in due diligence and document drafting.

A well-drafted LOI for a business purchase typically addresses:

• Purchase price and payment terms, including how much is paid at closing, whether any portion is financed by the seller, and whether there is an earnout tied to future performance.
• Deal structure, meaning whether this is an asset purchase or a stock or membership interest purchase.
• What is included and excluded, from equipment and inventory to the business name, the lease, and any owner-retained assets.
• Contingencies, such as obtaining financing, completing satisfactory due diligence, transferring licenses, and obtaining landlord consent to assign a lease.
• Exclusivity or a no-shop period, during which the seller agrees not to market the business to other buyers while you conduct due diligence.
• Confidentiality and a target timeline for moving from LOI to closing.

Due diligence is the core of buyer protection. It is the structured investigation that confirms the seller’s claims, surfaces hidden liabilities, and tells you whether the price, the structure, and the protections in the contract still make sense. The cardinal rule is simple: verify everything, assume nothing, and get it in writing. A business looks very different from the inside than it does in a marketing summary.

Thorough due diligence on a small business typically covers the following areas.

Financial due diligence

• At least three years of financial statements, federal and state tax returns, and recent interim financials.
• Accounts receivable and payable, debt schedules, and any seller financing already in place.
• The quality and consistency of earnings, and whether the reported profit reflects the real economics of the business.

Legal and corporate due diligence

• Formation documents, the operating agreement or bylaws, ownership records, and good standing with Maryland SDAT.
• Material contracts with customers, suppliers, and vendors, and whether those contracts can be assigned to you.
• Leases and real property, including whether the landlord must consent to a lease assignment.
• Pending or threatened litigation, judgments, and regulatory issues.
• Intellectual property, including trademarks, business names, software, and ownership of the website and customer data.

Lien and encumbrance searches

One of the most important and most overlooked steps is a UCC lien search. When a lender takes collateral against a business loan, it typically files a UCC-1 financing statement as public notice of its security interest in the borrower’s assets. In Maryland, these filings are maintained by the State Department of Assessments and Taxation (SDAT), and they can be searched by debtor name or filing number. Buying equipment, inventory, or an entire business without running a lien search is like buying a house without a title search. A perfected security interest can follow the collateral into your hands. Plan to either have liens released at closing or to satisfy them out of the purchase price.

Tax, employment, and regulatory due diligence

• State and local tax accounts, including sales and use tax, withholding, and personal property tax filings, and whether they are current.
• Outstanding tax liabilities and liens at the federal and state level. A seller’s unpaid payroll trust fund taxes are a particular danger area. See our discussion of the trust fund recovery penalty.
• Employees, payroll, benefits, and any employment agreements or restrictive covenants, including whether key employees are likely to stay.
• Licenses and permits required to operate, and whether they transfer with the business or must be obtained fresh.

Buying a business is a tax event, and Maryland has specific rules that can surprise a buyer who has not planned for them. Two issues deserve particular attention: the bulk sales tax and the risk of inheriting the seller’s unpaid taxes.

Maryland bulk sales tax

Maryland imposes its 6 percent sales and use tax on the sale of certain tangible personal property and digital products included in the purchase of a business, unless a specific exemption applies. It generally reaches tangible property such as furniture, fixtures, equipment, and leasehold improvements, and digital products or similar taxable items such as computer software, business records, customer lists, and non-capitalized goods and supplies. It generally does not apply to inventory held for resale, which is taxed later when sold to the public, and it generally does not apply to separately valued intangible assets such as goodwill or intellectual property. But Maryland’s Comptroller specifically identifies items such as business records and customer lists as taxable in the bulk sales context, so the purchase price allocation should be reviewed carefully. Certain other exemptions can apply as well, but they must be properly documented to hold up if the Comptroller examines the transaction. This tax most often arises in asset purchases, and it should be addressed during structuring rather than discovered at closing.

Successor liability for the seller’s taxes

A central risk in any business purchase is inheriting the seller’s unpaid tax liabilities. Maryland’s bulk transfer framework and bulk sales tax procedures are designed in part to protect the state’s right to collect tax from the assets being sold, which means a buyer who ignores them can end up exposed to the seller’s obligations. This is why tax clearance, lien searches, and a portion of the purchase price held in escrow are standard buyer protections. The specific procedures, notice requirements, and exemptions are detailed and fact-specific, so confirm exactly what your transaction requires with a Maryland tax attorney and CPA before you close.

The definitive purchase agreement is the document that actually transfers the business and allocates the risk between buyer and seller. It is far more than a price and a signature. It is where everything you learned in due diligence gets turned into enforceable protection. For an asset deal it is usually called an asset purchase agreement; for a stock or membership deal, a stock purchase agreement or membership interest purchase agreement.

The provisions that protect a buyer most include the following.

Representations and warranties

These are the seller’s statements of fact about the business: that the financial statements are accurate, that there is no undisclosed litigation, that taxes have been filed and paid, that the seller owns the assets free of undisclosed liens, that the business complies with applicable laws, and so on. Well-drafted representations and warranties force the seller to put its claims about the business in writing and stand behind them.

Indemnification, escrow, and holdbacks

Indemnification is what gives the representations teeth. If a representation turns out to be false and you suffer a loss, the seller agrees to make you whole. To make that promise collectible, buyers often negotiate an escrow or holdback, where a portion of the purchase price is held by a third party or withheld for a defined period to cover claims that surface after closing. This is one of the single most effective tools a buyer has, especially against tax and liability surprises.

Non-compete and transition provisions

You do not want the seller to take your money and open a competing business across the street. A reasonable non-compete and non-solicitation covenant protects the goodwill you paid for. Maryland may enforce seller non-compete and non-solicitation covenants in connection with the sale of a business when they are reasonable and tied to protecting the goodwill being purchased, but non-compete enforceability is highly fact-specific and subject to statutory limits in certain employment contexts. The covenant should be drafted narrowly as to scope, geography, duration, and protected business interests. We cover this analysis in our guide on non-compete enforceability in Maryland. A transition or training period, where the seller helps you take over operations and introduces you to key customers and suppliers, is also common and valuable.

Conditions to closing

These are the boxes that must be checked before you are obligated to close: financing in place, required consents and license transfers obtained, no material adverse change in the business, and accurate representations as of the closing date. If a condition is not met, you generally have the right to walk away rather than close a deal that has changed under you.

A business is only worth what it can keep operating, and a surprising number of the things that let it operate do not automatically come with the sale. This is one of the most common places a deal runs into trouble late, so it deserves attention well before closing.

• Business licenses and permits. Many Maryland businesses require state or local licenses, and some require industry-specific permits. In an asset purchase, these often do not transfer with the assets and may have to be obtained anew in your name, which takes time. Confirm what is required and how long it takes before you set a closing date.
• The lease. If the business operates from leased space, the lease is frequently one of its most valuable assets, and most commercial leases require the landlord’s consent to an assignment or to a change of control. Getting that consent, on acceptable terms, is often a condition to closing.
• Key contracts. Customer agreements, supplier contracts, franchise agreements, and equipment leases may contain anti-assignment clauses requiring the other party’s consent. The contracts that make the business valuable are exactly the ones you need to confirm you can keep.
• Employees. In an asset purchase, employees are generally not automatically transferred. You will need to decide whom to rehire and on what terms, and to handle final payroll and benefits matters with the seller.

In a stock or membership interest purchase, many of these items stay with the entity and do not require transfer, which is one of that structure’s advantages. But even there, change-of-control provisions in leases and major contracts can be triggered by the sale, so they still must be reviewed.

Most small business buyers finance at least part of the purchase. Common sources include conventional bank loans, SBA-backed loans, and seller financing, where the seller accepts payment over time. If you are borrowing, the lender will conduct its own diligence and will impose its own requirements and timeline, and almost all lenders will require a personal guarantee from the owners. A personal guarantee makes you personally liable for the debt if the business cannot pay, which can put your personal assets at risk, so the terms of any guarantee deserve careful review before you sign.

At closing, the parties sign the purchase agreement and the related documents, the purchase price is paid (often with funds going to satisfy liens and taxes first), and ownership transfers. For an asset deal, that includes bills of sale, assignment documents for contracts and leases, and assignments of intellectual property. For a stock or membership deal, it includes the transfer of the ownership interests and updated entity records.

Closing is not the end. Post-closing work commonly includes updating registrations with Maryland SDAT and the Comptroller, opening or transferring tax accounts, notifying customers, suppliers, and employees, transferring utilities and insurance, securing the seller’s transition assistance, and confirming that any escrow or holdback is administered as agreed. Handling these loose ends promptly is what turns a signed deal into a smoothly running business.

The framework above applies to almost any business purchase, but certain categories carry their own legal and regulatory wrinkles that a buyer must plan for.

• Franchises. Buying a franchised business means stepping into a franchise relationship governed by the franchisor’s agreement and disclosure documents. The franchisor usually must approve the buyer, the franchise agreement controls what you can and cannot do, and transfer fees and training requirements are common. Our franchisee representation practice focuses on protecting buyers entering these relationships.
• Gas stations and businesses with environmental exposure. A gas station acquisition carries environmental risk that few other small businesses match. Underground storage tanks and potential soil contamination can create cleanup liabilities that exceed the purchase price, which is why environmental due diligence, including a Phase I environmental site assessment and, where warranted, further testing, is essential. Fuel supply agreements, tank and pump compliance, and license transfers all need their own review.
• Regulated and licensed businesses. Healthcare practices, liquor-licensed establishments, contractors, and other licensed operations often require regulatory approval of a transfer, and the timeline for that approval can drive the entire deal calendar.

If your target falls into one of these categories, build the extra diligence and the longer timeline into your plan from the start, and structure the contract so that you can adjust or exit if a specialized investigation turns up a serious problem.

Most of the trouble that follows a business purchase is avoidable. These are the recurring mistakes that turn a promising acquisition into a costly one.

• Skipping or rushing due diligence. The protections that matter are built during the investigation. Buyers who rush to close to lock in a deal are the ones most likely to inherit a hidden problem.
• Not running a lien search. Failing to check UCC filings through SDAT can leave a perfected security interest attached to assets you thought you were buying free and clear.
• Ignoring the seller’s tax exposure. Unpaid sales tax, withholding, and payroll trust fund taxes can follow the business or the buyer. Tax due diligence and clearance procedures are not optional.
• Choosing the wrong structure. Defaulting to a stock or membership purchase for convenience can mean assuming liabilities an asset purchase would have left behind.
• Treating the LOI as harmless. The terms you accept in the letter of intent tend to anchor the whole deal, and some LOI provisions are binding. Signing one without legal review gives away leverage early.
• Assuming licenses, leases, and contracts transfer automatically. Many do not. Confirming consents and transfers before closing prevents an unpleasant surprise after.
• Weak or no buyer protections in the contract. Thin representations, no indemnification, and no escrow leave the buyer holding the bag when a problem surfaces post-closing.
• Buying without counsel. The money saved by skipping a lawyer is almost always small compared to the cost of one undiscovered liability.

You are not legally required to use a lawyer to buy a business in Maryland, but doing so without one is a serious risk. The purchase agreement and the due diligence behind it determine whether you are buying a healthy company or someone else’s debts, liens, tax liabilities, and lawsuits. A business attorney structures the deal as an asset or stock purchase, runs the legal due diligence, drafts the representations, warranties, and indemnification that protect you, confirms that licenses and contracts can transfer, and coordinates the tax and lien clearances that keep the seller’s old problems from becoming yours. The cost of counsel is almost always small relative to the price of the business and the liabilities at stake.

Due diligence is the investigation a buyer conducts before closing to confirm that what the seller is selling matches what the buyer is paying for. It covers financial records such as several years of tax returns and financial statements, legal items such as corporate records, contracts, leases, litigation, and intellectual property, regulatory items such as licenses and permits, tax accounts and clearances, employment matters, and a search for liens and security interests against the assets. The goal is to verify the seller’s claims, identify hidden liabilities, and surface anything that should change the price, the structure, or the protections in the contract before you are committed.

Buyers usually prefer an asset purchase, and sellers usually prefer a stock or membership interest sale, because the two structures allocate tax and liability very differently. In an asset purchase you buy specific assets and generally take on only the liabilities you expressly agree to assume, and you typically receive a stepped-up tax basis in the purchased assets for depreciation. In a stock or membership interest purchase you buy the entity itself and inherit its liabilities, including many that may not appear on the balance sheet, although it can be simpler when contracts, licenses, or permits are difficult to transfer. The right choice depends on the specific company, its contracts, its tax profile, and the liabilities involved, which is exactly the analysis your attorney and CPA should run before you sign.

Maryland imposes a 6 percent sales and use tax, sometimes called the bulk sales tax in this context, on the sale of certain tangible personal property and digital products included in the purchase of a business, unless a specific exemption applies. It generally reaches tangible property such as furniture, fixtures, equipment, and leasehold improvements, and digital products or similar taxable items such as computer software, business records, customer lists, and non-capitalized goods and supplies. It generally does not apply to inventory held for resale or to separately valued intangible assets such as goodwill or intellectual property, although the Comptroller specifically identifies items such as business records and customer lists as taxable, so the purchase price allocation should be reviewed carefully. The tax most often arises in asset purchases. Because the rules and exemptions are specific and documentation matters, a buyer should plan for this tax during structuring and confirm the treatment with a Maryland tax attorney and CPA before closing.

Yes, that is one of the central risks of buying a business, and it is a major reason buyers run tax and lien due diligence and negotiate protections. Depending on how a deal is structured and on the specific tax involved, a buyer can be exposed to a seller’s unpaid liabilities, and Maryland’s bulk transfer and bulk sales tax framework can require a buyer to address the seller’s tax obligations as part of the transaction. Buyers protect themselves through due diligence, lien searches, tax clearance procedures, escrow or holdback of part of the purchase price, and strong indemnification language in the purchase agreement. Confirm the specific requirements with counsel before closing.

It varies widely with the size and complexity of the deal, but a typical small business purchase often runs a few months from a signed letter of intent to closing. Due diligence alone commonly takes several weeks, and timelines stretch when financing, landlord consent for a lease assignment, license or permit transfers, or specialized investigations such as environmental review are involved. Rushing the timeline is one of the most common and most expensive mistakes a buyer can make, because the protections that matter are built during due diligence and negotiation, not after closing.

A letter of intent, or LOI, sets out the basic terms the parties intend to put into a binding purchase agreement: the purchase price and how it is paid, whether the deal is structured as an asset or stock purchase, what is included and excluded, key contingencies such as financing and satisfactory due diligence, an exclusivity or no-shop period, confidentiality, and a target timeline. Most of an LOI is intended to be non-binding, but certain provisions such as confidentiality and exclusivity are usually binding, and that distinction needs to be clear. Even when an LOI is non-binding, parties tend to treat its terms as the expected deal, so it should be drafted with care and reviewed by your attorney before you sign it.

Representations and warranties are the seller’s statements of fact about the business, for example that the financial statements are accurate, that there is no undisclosed litigation, that taxes have been paid, and that the seller owns the assets free of undisclosed liens. Indemnification is the mechanism that gives those statements teeth: if a representation turns out to be false and the buyer suffers a loss, the seller agrees to make the buyer whole, often backed by an escrow or holdback of part of the purchase price for a defined period. Together, these provisions shift the risk of hidden problems back toward the party in the best position to know about them, which is the seller, and they are among the most heavily negotiated terms in any purchase agreement.