Can You Buy a Business With a Pending Lawsuit?

The decision of whether an investor can buy a business with a pending lawsuit or not depends on the investor that wants to buy the business. This is so because it is legal to buy a business that has a pending lawsuit, it is just a matter of preference.

The question is, what should be your concerns if you are interested in buying a business with a pending lawsuit? You just may want to know certain things that will help you make an informed decision about whether to buy the business or not.

Best Questions to Ask Before Buying a Business with Pending Lawsuit

1. What is the Pending Lawsuit All About?

If you are considering buying a business with a pending lawsuit, then one of the major questions you should not fail to ask is what the pending lawsuit is all about. The truth is that there are some lawsuits that can crumble a business, and you may not want to buy a business that may not likely survive the lawsuit.

2. Who is Suing the Company?

Another question you should consider asking if you are interested in buying a business with a pending lawsuit is to know who is suing the company. The truth is that if it is a public figure or the government or even a major shareholder in the company that is suing the company, then you should really think hard before proceeding with your decision.

This is so because the possibility of such a business having bad publicity after the lawsuit is high and it might affect the performance of the business when you eventually buy it.

3. How is the Company Performing Since the Lawsuit Started?

Another question you should ask or an investigation you should carry out if you are considering buying a business with a pending lawsuit is to look through the books of the company to have an idea of how the company is performing since the lawsuit started.

If the sales and revenue of the company nosedived after the lawsuit started, then you may want to reconsider your decision of buying the business.

4. How Long the Lawsuit has Lasted

Another question you should ask if you are considering buying a business with a pending lawsuit is to know how long the lawsuit has lasted. If the lawsuit is just starting and you have the feeling that it might take a long time before the lawsuit will be concluded, then you should not bother going ahead to buy the business.

If the lawsuit against the business has lasted longer than expected, you may also want to reconsider your decision of buying the business because that might be a sign that the business is spending more than required to pursue the lawsuit and might eventually file for bankruptcy.

Precautions to Take When Buying a Business With a Pending Lawsuit

First, you need to make sure that the business will not just survive the lawsuit but will also continue to be competitive in the market space.

In order to get the required assurance in this regard, you may want to talk to an attorney that has experience in handling such a lawsuit to know the possible outcome of the pending lawsuit and the implications it will have on your if you go ahead to buy the business.

So also, you may want to talk with a business consultant that understands the industry the business belongs to and the market space they are operating. The essence of doing this is to be able to gauge the market performance of the company and to project how it will perform after the lawsuit has been concluded.

Secondly, you need to be sure that if you eventually buy the business, you may not be inheriting damages and paying debts that you did not bargain for.

The truth is that the reason why the owner of a business may want to sell off a business with a pending lawsuit could be that they are not able to shoulder the financial responsibility incurred by the business and may want to hide some of the cost associated with buying the business.

So, you must make sure you carry out your due diligence to be sure there are no hidden charges before going ahead to buy the business. If not, you might regret buying over the business.

Pros and Cons of Buying a Business with a Pending Lawsuit

As expected, buying a business with a pending lawsuit will always come some advantages and disadvantages.

Pros

One of the major advantages of buying a business with a pending lawsuit is that you are likely going to be buying the business for far lesser than the market price.

Another advantage is that the process of buying the business might not be tedious and can be very straightforward because the owners of the business might not be lucky to have options as regards the number of people who are interested in buying the business hence, they would want to treat anyone that shows interest nicely so that they can just buy off the business.

Cons

One of the major disadvantages of buying a business with a pending lawsuit is that you have the possibility of becoming the owner of a business that has bad publicity especially if the lawsuit goes against the company. You will be saddled with the task of clearing the mess the previous owner of the business caused before going ahead to start building the business again.

Another disadvantage that you should be prepared for if you buy a business with a pending lawsuit is that you might be spending more money than you budgeted for in clearing the debt incurred by the business.

As a matter of fact, you may be responsible for paying the fine leveled against the company if the lawsuit goes against the business. This is so because you have become the new owner of the company and you are responsible for the company.

In conclusion,

Before you go ahead to buy a business with a pending lawsuit, you must weigh your options, and look deeply into the pros and cons of buying the business. If the pros outweigh the cons, then you may want to go ahead to buy the business. But, if the cons outweigh the pros or it is at par, then you may want to reconsider your decision of wanting to buy a business with a pending lawsuit.