What to Know About Business Structure and Compliance When Buying a Business
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If you have your sights set on acquiring an online business in the coming year, there are numerous factors to consider, from performance and valuation to market trends and operational requirements. Equally important are the compliance requirements of the business.
All businesses have local, state, and federal compliance obligations. These include business formation requirements, financial and tax filings, payroll and employment obligations, and licensing and permitting. Failing to keep up to date on these requirements can cause a business to fall out of good standing, which can have serious repercussions.
When acquiring a new business, it’s important to understand these compliance obligations, which can vary from state to state. In addition, different business types can have different requirements, so a nuanced approach to compliance is a necessity. Following are a few compliance-related factors to consider when purchasing an online business.
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Review the Business Structure
When purchasing an online business, it’s important to consider the business structure, otherwise known as entity type. Different entity types have different compliance requirements, so understanding each is essential to remain compliant. Purchasing a business that is out of compliance means you’ve now inherited those risks, which can lead to fines, penalties, legal issues, and in extreme cases, dissolution.
Following is a summary of each type of business entity:
- Sole Proprietorship: A business owned and operated by one individual. There is no legal separation between the owner and the business.
- Partnership: A business owned by two or more people. There is no legal separation between the owners and the business.
- Limited Liability Company (LLC): A simple structure that offers some liability protection for owners.
- C Corporation: A legal entity separate from its owners (shareholders).
- S Corporation: Not an entity type, but rather a tax election available to LLCs and corporations in which income and losses are passed through to owners/shareholders.
If you are purchasing an existing business, it is most likely that it will be an LLC or corporation. Understanding the difference between the two dictates your compliance obligations. In many cases, a new owner may consider changing the entity type. For example, if you are purchasing an LLC, you may want to incorporate in order to attract investors and expand the business.
The process of changing a business’s entity type depends on the state in which it is formed. The simplest process is a statutory conversion, which allows you to change the entity type without starting a new business. This is filed along with Articles of Organization for an LLC or Articles of Incorporation for a corporation. However, not all states allow statutory conversions. If this is the case, you would have to dissolve the current business and start a new one from scratch.
If you purchase an LLC or C Corporation and would like to take advantage of pass-through tax benefits, you can elect S Corp status. It should be noted that the deadline to make this election is two months and 15 days after the start of the new tax year (March 16, 2026) or two months and 15 days from the date of formation for new companies.
How to Domesticate a Business
Another compliance issue to consider when acquiring a new business is domestication. If you purchase an online business that is headquartered in another state, but you plan to operate it in your home state, it must be domesticated. This entails filing Articles of Domestication in the new state and Articles of Dissolution in the current state. Not every state allows domestication. If this is the case, you must dissolve the business in the current state and re-form it as a new business in the new state.
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Dissolving a Newly Acquired Business
If you need to dissolve a newly acquired business to re-form it as a new business, you must file Articles of Dissolution. But before doing so, you must make sure the business is in good standing. While this should be part of the purchase process, it’s a good idea to double-check to ensure all outstanding debts and compliance requirements are resolved. It is also recommended to close businesses by year-end to avoid ongoing tax obligations.
Articles of Amendment
Another important part of purchasing a business is filing Articles of Amendments. These documents update the business’s new information, including the following:
- Changes to the company name
- Changes to the Registered Agent
- Company business address
- Modifying director or member information
- Changing the number of authorized shares
- Adjustments to the business activities of the company
In addition, the IRS generally requires a business to obtain a new Employer Identification Number (EIN) when a business is sold.
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Ongoing Compliance Obligations
Once you review and address any compliance gaps, it’s important to maintain compliance to keep and maintain a newly acquired company in good standing. Failing to file reports, taxes, and other required documents can not only lead to fines and penalties, but it can also put the company in bad standing and cause legal issues. Although the requirements vary from state to state, ongoing compliance requirements typically include the following:
- LLC and C Corporation formation filings such as Articles of Organization or Articles of Incorporation
- S Corporation status documentation
- Doing Business As (DBA) registrations for any fictitious business names
- Governance documents such as LLC Operating Agreement and Bylaws
- Meeting minutes that document the discussions and actions during LLC member, shareholder, and board of directors’ meetings
- Articles of Amendment that reflect significant changes made to the business entity
- Certificate of Good Standing from the entity’s state of formation
- Certificates of Authority for foreign qualification, which identify the states where the entity is registered to do business outside of its home state
- Annual Report filings for both the home state and any states where it does business
It’s also important to confirm that the company has the local permits and licenses it needs to conduct business, such as operating licenses, zoning permits, and industry-related licenses.
Keep Your New Business in Good Standing
Ensuring your newly acquired business remains in good standing is one of the most important responsibilities of a business owner. There are many tools on the market that can help you keep on top of the many compliance requirements. CorpNet’s Business Compliance Portal is a free, cloud-based tool for staying organized and keeping up with essential deadlines. It can help you focus on what matters most — growing your new business.
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Nellie Akalp is a passionate entrepreneur, business expert and mother of four. She is the CEO of CorpNet.com, your trusted partner for starting a business, registering for payroll taxes, and maintaining business compliance across the United States.
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