Buying or selling a business can be a turning point, but it also comes with a long list of legal issues and traps, including certain expenses, if you are not careful. Licensing rules, taxes, and local regulations differ across New York, New Jersey, and Connecticut, and even a small oversight can throw your deal off course.
At Weberman Business Law P.C., we guide entrepreneurs, startups, and growing companies through these transactions with clear steps and steady communication. In this article, we outline common mistakes we see in business sales and purchases related to the business model and the basic terms, and share practical tips to avoid them before they turn into costly problems. Our goal is simple: help you close a strong deal with fewer surprises, often with the assistance of an attorney.
Failing to Clarify Licensing and Regulatory Requirements
Licensing rules vary by state, industry, and even municipality, including the need for local licenses. In New York, New York business licenses run through the State Liquor Authority, while many health permits related to the business entity go through the Department of Health or, in New York City, the Department of Health and Mental Hygiene. In New Jersey, certain businesses must register with the Division of Alcoholic Beverage Control or the Department of Health, and Connecticut has its own Department of Consumer Protection for a wide range of licenses. Local zoning boards in all three states also regulate use, signage, hours of operation, and parking.
A common mistake is assuming a license automatically transfers with the sale, without considering the tax consequences. In many cases, it does not, particularly when considering the business assets involved. For example, liquor licenses often require a new application or ownership change filing, and some professional licenses cannot be transferred at all.
Before signing, confirm zoning compliance, review health and safety permits, and check whether industry certifications related to business operations and operating expenses are tied to the business or the individual business owner. In large cities like New York City or Newark, additional layers of zoning and building approvals can create delays if not handled early.
To keep the process on track, take these steps early and build them into your deal timeline:
- Call the correct agency in your state to confirm whether a license or permit can be transferred or must be reissued.
- Ask the municipality about zoning compliance, including signage, hours, and parking requirements.
- Collect all active permits, renewal dates, prior violations, and proof of cure.
- Plan for lead times, such as publication periods for liquor licenses or landlord consent for permit changes.
Getting licensing, including understanding local licensing requirements, right up front, avoids costly delays and protects the value of the business you are buying.
Once you map the regulatory landscape, the next step is digging into the business itself. That is where due diligence comes in.
Skipping a Thorough Due Diligence Review
Due diligence should cover money, legal obligations, people, operations, and tangible assets. A proper review looks at financial statements, balance sheet tax filings, including tax return documents, bank debt, liens, UCC searches, material contracts, leases, intellectual property, privacy policies, and any government filings. Employee matters are also critical, including pay practices, overtime compliance, benefits, and pending complaints.
The biggest risks often sit outside public records. Pending demand letters, wage and hour exposure, unpaid sales tax, or old vendor disputes can follow a buyer long after closing. Relying only on the seller’s word, without independent checks of financial statements, is one of the fastest ways to invite problems.
Steps that help protect buyers and sellers in New York, New Jersey, and Connecticut, often recommended by legal counsel, include:
- Run background checks for litigation, administrative actions, and tax warrants through each state’s system.
- Confirm sales tax compliance. New York, New Jersey, and Connecticut each have “bulk sale” rules to protect buyers from inheriting a seller’s unpaid sales tax, but the filing requirements and deadlines differ by state.
- Review payroll and employment practices to ensure compliance with wage and hour laws. All three states enforce strict penalties for violations, and labor departments actively audit businesses.
- Interview managers and staff to uncover unrecorded commitments, customer turnover, or warranty issues.
- Assemble a team of legal, accounting, and industry professionals to check contracts, financials, and regulatory matters from every angle.
A well-run diligence process not only uncovers red flags but also gives you leverage to improve deal terms or, if needed, establish a binding agreement for a clean reason to walk away. Skipping it can turn a promising transaction into a costly fight.
Common Deal Pitfalls and Practical Fixes
| Pitfall | Risk | Quick Fix |
| Assuming licenses transfer | Many licenses and permits require new filings or cannot be transferred | Confirm requirements with the agency and plan filings before closing |
| Light due diligence | Hidden tax debts, wage claims, or vendor disputes | Run tax and lien checks, review payroll records, and interview key staff |
| Wrong deal structure | Unexpected state or local taxes and successor liability | Compare asset vs stock/membership sales, file bulk sale notices, and model tax outcomes |
| Loose negotiation terms | Disputes over earnouts, transition periods, or non-compete scope | Put all terms in writing with clear timelines and defined metrics |
| Messy documentation | Gaps in contracts or inconsistent terms that lead to disputes | Align purchase agreements, assignments, and consents to avoid conflicts |
| Rushed closing | Missed filings, incomplete transfers, or lingering debts | Use a closing checklist and escrow until every condition is satisfied |
Use this table as a quick filter during the review process, then dig deeper where the risks are highest.
Misconceptions About the Structure and Tax Implications of the Deal
Asset sales and stock or membership interest sales work very differently. In an asset deal, the buyer usually selects specific assets and leaves many liabilities, but states can still impose successor liability for unpaid sales or payroll taxes if filings are missed. In a stock or membership interest sale, the limited liability company continues as is, meaning contracts, licenses, and obligations often carry over unless renegotiated.
Taxes drive the real outcome, and working with an attorney who understands corporate tax law can make the difference between a deal that protects your profits and one that drains them. Each state in the region, including New York, New Jersey, and Connecticut, as well as the New York Department, has its own rules for federal licenses, income tax, sales tax on certain assets, and transfer taxes when real estate is part of the deal. For example:
- Sales tax: Bulk sale notices are required in all three states, but the procedures and timelines differ. Skipping this step can leave the buyer responsible for the seller’s unpaid sales tax.
- Transfer taxes: Real estate transfers can trigger state or local transfer taxes. In cities like New York, additional local rules may apply.
- Entity structure: Corporations, LLCs, and partnerships have different tax treatment and different voting or consent rules for approving a sale. These requirements vary across states and can affect whether minority owners must approve the deal.
Because tax and structural rules change from state to state, buyers and sellers should involve a tax professional early in the process. Modeling both sides of the company transaction, including the down payment, helps compare net outcomes, avoid surprise liabilities, and choose a structure that fits the deal timeline.
With the structure settled, the next step is negotiation, where strong terms protect the value you worked to build.
Overlooking Key Terms in Sales Negotiations
Price often grabs the spotlight, but the supporting terms carry most of the risk. Payment schedules, earnouts, escrows, non-compete and non-solicit provisions, transition support, and warranties and indemnities are all critical parts of the agreement. Letters of Intent can also create unexpected obligations. Even if labeled “non-binding,” they often include exclusivity language, confidentiality, or working capital adjustments that affect leverage later in the process.
Put every vital detail in writing. Courts in New York, New Jersey, and Connecticut enforce clear written agreements, and oral promises rarely hold up under the statute of frauds or the Uniform Commercial Code.
When drafting restrictive covenants, scope, geography, duration, and the handling of confidential information must be precise. Courts in all three states, often advised by the seller’s attorney, apply a reasonableness test, though New York courts, as in BDO Seidman v. Hirschberg, give more flexibility to restraints tied to the sale of a business broker than to employment agreements. New Jersey and Connecticut apply similar principles, but judges may scrutinize broad restrictions closely.
Earnout provisions also need clarity. Define the metrics, data sources, and audit rights in detail, coupled with a confidentiality agreement, to reduce future disputes. Vague language is one of the most common sources of post-closing litigation.
To strengthen your position, line up more than one qualified buyer or seller, control access to the data room, and structure exclusivity periods that align with your diligence timeline. A well-documented negotiation record between the two parties not only improves leverage but also gives you protection if disagreements surface later.
Once the business terms are locked in, the legal documents must align with them. This is where sloppy drafting can undo months of careful negotiation.
Poorly Drafted or Incomplete Legal Documentation
Core deal documents form the foundation of a smooth transfer. These typically include the purchase agreement, a bill of sale for assets, assignments of contracts and intellectual property, landlord consents and lease assignments, and, in stock deals, stock powers, shareholder consents, and a promissory note. Each of these plays a distinct role, and missing or vague language can disrupt ownership rights or even block enforcement after closing.
Courts in New York, New Jersey, and Connecticut consistently enforce clear written agreements, including any required security agreement. When merger or integration clauses are included, judges often reject outside statements that conflict with the signed documents. Classic New York cases such as Danann Realty and W.W.W. Associates show how precise contract language can protect a buyer or seller. At the same time, vague or incomplete drafting can create costly disputes.
It is also essential to coordinate related agreements for any existing business. Vendor contracts, customer commitments, and employment arrangements, including protection of trade secrets, should align with the main purchase agreement. Employment laws such as the New York Labor Law, the New Jersey WARN Act, and the Connecticut WARN requirements can come into play if the deal leads to layoffs or changes in scheduling. Ignoring these details risks fines and employee lawsuits.
The safest step is to have an experienced business attorney review the entire stack of documents together. This ensures that lawyers, titles, contracts, and consents align and that nothing slips through the cracks.
Once the documents are tight and consistent, attention can shift to the closing process and the practical steps required to finalize the transfer.
Rushing the Closing Process
The final stretch of a deal can feel rushed, but skipping important checks often leads to costly problems later. A clear closing checklist helps you avoid missed steps and protects both parties.
Key items to confirm include:
- Lien releases and payoff letters are issued to ensure that debts tied to the business are cleared.
- Landlord consents and lease assignments so the buyer has full rights to occupy and operate the location.
- License filings and agency approvals can take longer in regulated industries.
- Assignments of intellectual property, including trademarks, copyrights, and patents.
- Wire instructions verified through a trusted channel to prevent payment fraud.
On the operational side, ensure that delivered assets align with the schedules outlined in the purchase agreement. That includes verifying serial numbers for equipment, checking inventory counts, and transferring digital property such as domain names, social media accounts, and software licenses with written confirmation.
Outstanding debts and working capital adjustments should be reconciled before funds are released. Escrow arrangements are often used in New York, New Jersey, and Connecticut to hold back a portion of the purchase price until all stated conditions are satisfied. This adds security for both the buyer and the seller.
An organized closing meeting, whether in person or virtual, helps all parties check off each condition before ownership officially transfers. Funds should only be released once the escrow agent receives written confirmation that every requirement has been met.
If you want guidance on building a closing process that avoids last-minute stress, our team handles these details every week and knows how to keep deals moving smoothly.
Plan Your Next Business Move with Confidence
If you are planning to buy or sell a business, we invite you to call us at (516) 247-9163 or reach out through our Contact Us page to schedule a consultation, preferably with an experienced attorney. We take pride in guiding clients through complex deals involving an existing business or new business with steady communication, careful planning, and strategies designed to reduce risk.
Your business sale or purchase should set the stage for your next chapter, not create new legal problems. Our team is here to help you move forward with confidence.