Legal Considerations for First Time Business Buyers in Northern Michigan
When Chris, a 47-year-old project manager from Traverse City, decided to leave his corporate job and buy the small marine repair business he’d been eyeing for years, he figured the hardest part would be securing financing and learning how to run the day-to-day operations. But after receiving a 45-page draft purchase agreement filled with terms like “indemnification,” “successor liability,” and “non-compete covenants,” he realized there was a lot more to buying a business than just shaking hands and signing on the dotted line.
Chris's story is increasingly common across Northern Michigan, where mid-career professionals are turning their experience, savings, and local knowledge into business ownership. Maybe you're considering purchasing a coffee shop in Petoskey, a hardware store in Gaylord, or a landscaping business in Cadillac. No matter the type of business, buying an existing operation can be a smart move—especially when compared to starting from scratch.
But that doesn't mean it's simple.
Buying a business is a legal transaction at its core. It involves contracts, liabilities, employment law, regulatory compliance, and tax implications. And first-time buyers often don’t know what they don’t know. That’s where having the right legal guidance can make all the difference.
At True North Legal Group, we’ve helped clients throughout Northern Michigan navigate business purchases both large and small. Below, we outline five of the most important legal considerations you need to keep in mind before buying your first business.
1. Due Diligence: Your Legal Safety Net
“Due diligence” may sound like a buzzword, but in reality, it’s your best chance to confirm that what you’re buying is worth the price—and legally sound. You’re not just buying furniture and a customer list. You’re also potentially inheriting obligations, debts, or problems that aren’t visible at first glance.
A solid due diligence process should include reviewing:
- Financial records: Tax returns, profit and loss statements, balance sheets, and debt obligations.
- Legal compliance: Are there any past or pending lawsuits? Is the business properly licensed and permitted?
- Contracts: Leases, vendor agreements, customer contracts, and any existing service obligations.
- Employment issues: Wage and hour compliance, classification of employees versus contractors, and pending claims.
- Tax liabilities: Particularly sales tax or unemployment insurance liabilities, which can become your responsibility under Michigan law if not addressed properly.
If you're buying the business’s assets only, you may avoid some liabilities—but don’t count on that unless it’s clearly spelled out in the agreement and supported by proper documentation.
2. Choosing the Right Structure: Asset vs. Equity Purchase
Business acquisitions are typically structured in one of two ways: as an asset purchase or an equity (stock or membership interest) purchase. Each option carries different risks, tax consequences, and legal complexities.
Most first-time buyers opt for an asset purchase, which allows them to pick and choose the components of the business they want—equipment, customer lists, goodwill, trademarks—while avoiding unwanted liabilities. This approach can provide a cleaner transition and more protection.
An equity purchase involves buying the ownership interest in the existing company, meaning you step into the shoes of the previous owner. This might be appropriate when licenses, contracts, or permits are tied to the business entity and can’t be easily reassigned—but it comes with higher risk and requires deeper due diligence.
Deciding on the right structure is one of the first steps you should take with your legal counsel, ideally before signing a letter of intent.
3. The Purchase Agreement: Protecting the Deal—and Yourself
The purchase agreement is where your expectations meet legal reality. It sets the terms of the deal, defines what you’re getting (and not getting), and allocates responsibility if something goes wrong post-sale.
A strong agreement will address:
- What assets or ownership interests are being sold
- The purchase price and how it will be paid (lump sum, installment, seller financing, etc.)
- Representations and warranties (essentially promises from the seller about the business’s condition and operations)
- Non-compete and non-solicitation clauses to prevent the seller from immediately opening a competing business down the street
- Indemnification clauses that lay out what happens if a hidden liability surfaces after closing
In our experience, this is where many first-time buyers get surprised. A well-drafted agreement doesn’t just facilitate the transaction—it protects your future.
4. Employees: Opportunities and Obligations
If the business has employees, you need a plan. Are you keeping them on? Changing their roles or compensation? Are you inheriting benefits or vacation time?
Many buyers want to retain existing employees to preserve business continuity, but that can also mean stepping into potential liabilities—especially if proper employment practices weren’t followed. You’ll want to:
- Review any employment agreements or handbooks
- Determine if staff were classified correctly (employee vs. independent contractor)
- Understand your obligations under state and federal labor laws, including notice requirements and unemployment insurance contributions
Employment issues are one of the most commonly overlooked legal pitfalls in small business acquisitions, and they can become expensive if not addressed before the sale.
5. Licenses, Permits, and Local Compliance
Before you finalize the purchase, confirm that the business can legally operate—under your ownership. This often means dealing with licenses, permits, and zoning issues at the state, county, and municipal levels.
Depending on the nature of the business, you may need to secure:
- A new business license or sales tax permit
- Health department clearance (for restaurants or food-related businesses)
- Liquor licenses (which are often non-transferable)
- Local zoning approval for continued operations
Because every locality in Northern Michigan is different, what works in Traverse City may not apply in Boyne City. It’s essential to identify what permits are required, whether they’re transferable, and how long it will take to obtain new ones if needed.
A Local Partner for a Big Decision
Buying a business is one of the most significant financial and personal decisions you’ll ever make. It’s also one of the most complex—and often emotional—legal transactions you’ll undertake. The right legal partner won’t just help you check the boxes; they’ll help you make decisions that set you up for long-term success.
At True North Legal Group, we understand the legal landscape for business owners in Northern Michigan. From due diligence to contract negotiation to closing day, we help clients navigate the process with confidence.
If you're considering a business purchase—whether it's a family-owned company or a strategic investment—we invite you to explore how our legal membership programs provide affordable, ongoing access to experienced attorneys who truly understand local business.
Send us an email or give us a call if you are looking to make a deal. We’d be honored to help you chart a clear course toward business ownership.