How to Buy a Business in the USA: Process, Due Diligence, and Structure

What Is Buying a Business (M&A)? Merger vs Acquisition

Mergers and acquisitions (M&A) is the umbrella term for an entire business or a part of it changing hands. An acquisition is a buyer purchasing control of a target business; a merger is two companies combining into a single entity. For most foreign entrepreneurs, the practical scenario is acquiring an active US business (a restaurant, store, or service business) by purchase.

Buying offers a different equation than forming from scratch: you start with an existing customer base, revenue record, and staff, but you may also inherit the business's past debts and risks. If you are weighing forming from scratch, we cover that in our guide to starting a company in the USA; this guide explains the path of buying an existing business step by step. It is general information, not legal or tax advice.

Stock Purchase or Asset Purchase?

You can buy the same business through two different legal structures, and the choice fundamentally changes the risks you inherit and your tax burden.

Stock purchase: You buy the company's shares and take over the entity with its history. Licenses, contracts, and permits generally stay in place; but all known and unknown debts also pass to you. This route is preferred when preserving a license or long-term contracts is critical.

Asset purchase: You buy not the entity but the assets you select (equipment, brand, customer list, inventory). You leave most past debts behind, so it is generally lower-risk for the buyer. On the tax side, an asset purchase is reported through the IRS Form 8594 asset acquisition statement and can offer a depreciation advantage. For foreign buyers and E-2 scenarios, the asset purchase is the most common structure.

The US Business Acquisition Process: Step by Step

An acquisition is a chain of steps that, out of order, puts both the money and the deal at risk.

• 1. Targeting and first contact: A business matching your type, budget, and goal is identified, and the first discussion with the seller takes place.
• 2. Letter of intent (LOI): Price, main terms, and timeline are outlined; confidentiality and exclusivity clauses can be binding.
• 3. Due diligence: The business's debts, lawsuits, taxes, contracts, and licenses are reviewed.
• 4. Contract and negotiation: The stock or asset purchase agreement is drafted with representations, warranties, and protective clauses.
• 5. Closing: Payment, transfer, and documents are completed simultaneously.

If you want the legal side managed from one place, our mergers and acquisitions legal service handles every stage from due diligence to closing. For an independent overview of the general steps, the SBA guide to buying an existing business is also a practical resource.

What Is Due Diligence and What Does It Review?

Due diligence is the process of verifying what you are buying before you pay. Skipping it is the most expensive mistake in an acquisition; a tax debt or lawsuit that surfaces after closing can wipe out the entire investment.

The review covers: the company's financial statements and debts, ongoing or potential lawsuits, tax filings and obligations, customer and supplier contracts, lease and property status, employee contracts and severance obligations, and required licenses and permits. The findings turn into a risk map; that map directly shapes both the price negotiation and the buy decision.

Business Valuation: What Is the Business Worth?

Setting the right price is the most debated step of an acquisition. For small and mid-sized businesses, a common method multiplies the business's adjusted annual earnings (SDE or EBITDA) by an industry multiple. The multiple varies with the sector, customer concentration, growth potential, and revenue sustainability.

Looking only at past earnings is misleading; factors like revenue tied to a single customer, sales that drop when the seller leaves, or equipment due for replacement lower the real value. An independent valuation and the due diligence findings keep the price you pay grounded in reality.

Letter of Intent, Earn-Out, and Escrow: Payment Structures

Payment is rarely made in one upfront sum; structures that protect both buyer and seller come into play.

Letter of intent (LOI): It frames the deal. Most of its terms are non-binding, but clauses like confidentiality and exclusivity can bind; so it is drafted carefully. Earn-out: Tying part of the purchase price to the business's post-closing performance; it bridges a price gap and lowers the buyer's risk. Escrow: Holding part of the price in an independent account until transfer conditions are met. In E-2 visa scenarios, escrow protects the investor's capital by tying the purchase price to visa approval.

Buying a Business for an E-2 Visa

For foreign investors, acquisition has a special advantage: buying an active business can present a stronger E-2 file than forming from scratch, because the business's track record of revenue and employment makes meeting the marginality requirement easier. But the type, revenue, and employment of the acquired business must fit the E-2 criteria.

We cover which business fits E-2, the marginality risk, and the buy-versus-build comparison in our E-2 business selection guide. For investors who want to build the acquisition structure together with the visa process, our E-2 investor visa service runs the acquisition integrated with immigration.

Common Mistakes and Risks

The most expensive mistakes in an acquisition are usually the same. Signing without due diligence lets hidden debts return after closing. Skipping the non-compete clause lets the seller reopen the same business and take back customers. The wrong deal structure (an unnecessary stock purchase) makes you assume avoidable debts. Basing the valuation only on the seller's word risks overpaying.