Buying a business in Oregon: the legal checklist before you sign.

Why does the buy side need its own legal checklist?

The seller’s biggest questions in a business sale are the price and the tax consequences of the sale. The buyer’s problem is different. What the buyer fails to find before closing can become the buyer’s problem after it. A lien no one searched for, a lease assignment that never received the landlord’s consent, or a license that does not carry over can surface weeks after the money moves, when the seller has far less reason to cooperate. Paluska Law’s companion article on selling a business in Oregon explains the asset sale versus stock sale choice from the seller’s side. This checklist covers what the buyer should confirm before signing anything. Paluska Law, a Salem, Oregon business law firm, handles this work for buyers across the Willamette Valley.

Should I buy the assets or buy the entity?

Most closely held Oregon business purchases are structured as asset purchases. The buyer, usually through a newly formed entity, purchases the equipment, inventory, name, goodwill, and the specific contracts it wants under an Asset Purchase Agreement, and leaves the seller’s entity behind along with its history. An asset purchase also generally gives the buyer a new tax basis in the purchased assets, subject to the purchase-price allocation, which is one of several reasons the buyer’s CPA belongs in the structure conversation from the start.

An entity purchase (a Stock Purchase Agreement for a corporation, or a Membership Interest Purchase Agreement for an LLC) keeps the company itself intact, which can preserve contracts and licenses that might otherwise need a transfer, consent, or new application. The trade is that the buyer takes the company’s entire history, known and unknown. Salem transactional attorney Michael Paluska works through this choice with the buyer and the buyer’s CPA before the Letter of Intent is signed, because the structure drives every document drafted afterward.

What does a Letter of Intent do for a buyer?

A Letter of Intent sets out the basic deal, the price, the structure, and the timeline, before the parties spend substantial time and money on due diligence and full transaction documents. Most of its business terms are usually stated to be nonbinding, but the Letter of Intent should say clearly which provisions are intended to bind the seller and the buyer. Those often include confidentiality, an exclusivity or no-shop period, access to due diligence materials, and responsibility for expenses if the deal falls apart. It also frames the due diligence window and the closing timeline the rest of the transaction runs on. A buyer should have the Letter of Intent reviewed by an Oregon business lawyer before signing it, because even a document called nonbinding can contain enforceable obligations.

What legal issues should I review before buying a business in Oregon?

Due diligence is the buyer’s inspection period, and for an Oregon business it should cover at least six areas. The first is the seller’s entity. Confirm in the Oregon Secretary of State Business Registry that the company is active and current on its filings, since missing an annual report can lead to administrative dissolution of the company. The current annual report fee for a domestic Oregon corporation or LLC is $100. The second is liens and business personal property taxes. Run a UCC lien search through the Oregon Secretary of State and review the appropriate county lien records. Under ORS 79A.3150, a security interest generally continues in collateral after a sale unless the secured party authorized the disposition free of the lien or another statutory exception applies. Oregon also has a business-personal-property tax rule that is easy to miss. ORS 311.639 requires a seller of business personal property to provide a disclosure notice, and ORS 311.641 gives a purchaser a path to bona fide purchaser status if the buyer completes the required diligence, including a search of the applicable County Clerk Lien Record and a Secretary of State UCC search within three business days before the purchase. The third is the financials. Review at least three years of statements and tax returns with a CPA. The fourth is the contracts and the lease. Make a full inventory, and read the assignment and consent language on every one. The fifth is licenses and permits. Identify which ones the business needs, and which of those actually transfer or must be reissued. The sixth is the people and the disputes. Look at key employees, customer concentration, and any pending or threatened claims. For most business purchases in Salem or Keizer, that also means checking recorded judgments and tax liens in the Marion County or Polk County records, including the County Clerk Lien Record, depending on where the business operations and assets are located or were previously located.

Do the seller’s debts follow the business after I buy it?

Some can, which is why the lien search, the property-tax due diligence, and the Asset Purchase Agreement matter so much. Oregon repealed its former UCC bulk-transfer provisions in 1991, so there is no general bulk-sale notice-to-creditors procedure that clears claims before closing. The buyer’s protection instead comes from due diligence, payoff and release procedures, and the purchase agreement. An asset purchase can leave most ordinary seller liabilities behind, but it does not make liens or statutory successor issues disappear. A security interest can continue in the property it covers until it is released or another exception applies. For used business personal property, ORS 311.641 is especially important. A buyer who qualifies as a bona fide purchaser is not liable for property taxes that were delinquent on the date of purchase, and the tax collector must release the lien as to the purchased property upon receiving sufficient information. Separate from seller debt, the buyer of an ongoing operation can also succeed to the seller’s unemployment insurance experience under ORS 657.480, which can affect the payroll tax rate going forward. The Asset Purchase Agreement is where the contractual side of this gets handled. It should include a clear list of excluded liabilities, payoff letters and lien releases as closing conditions, seller representations and warranties, indemnification, and, where the facts warrant it, a holdback of part of the purchase price until the risk clears.

How do contracts, leases, and licenses transfer to a buyer?

Not automatically. Many commercial contracts contain language requiring the other party’s written consent before the contract can move to a buyer, and many commercial leases require the landlord’s written consent to an Assignment of Lease. Even in an entity purchase, a provision triggered by a change in ownership can treat the ownership change itself as an assignment, so buying the entity does not always avoid the consent problem. Government licenses are their own category. Depending on the license and the agency, some may continue with the entity, while others require a transfer, approval, or a new application. A buyer who assumes a license will carry over can find the business unable to operate legally on day one. The fix is procedural and belongs in the purchase agreement. Every required consent, license confirmation, and lease assignment should be a condition that must be satisfied before the buyer is obligated to close.

Can I stop the seller from competing with me after closing?

Usually, if the covenant is tied to the goodwill being purchased and is drafted within Oregon’s common-law limits. Oregon’s employee noncompete statute, ORS 653.295, imposes strict limits on noncompetition agreements in the employment context, but subsections (1) and (3) apply only to agreements made in an employment relationship or contract and not otherwise. A covenant not to compete given by the seller as part of the sale of a business therefore sits outside those employment-specific restrictions, but it still must protect the goodwill or business interest being purchased and be reasonable in duration, geographic scope, and the activity it restricts. Drafted well, and paired with appropriate covenants not to solicit employees and customers, it protects the goodwill the buyer just paid for. One caution applies. If the seller stays on as an employee after closing, a separate employment noncompete must satisfy ORS 653.295, so the sale covenant should not simply be copied into the employment agreement.

What documents close an Oregon business purchase?

The closing set varies with the deal, but three groups of documents appear in nearly every Oregon asset purchase.

The Asset Purchase Agreement

The master document. It identifies exactly which assets transfer and which liabilities, if any, the buyer assumes, and states the price and how it is paid. It carries the seller’s representations and warranties. It sets the closing conditions, including consents, lien releases, tax-lien clearance, and license confirmations, and it contains the indemnification terms that give the buyer recourse if a representation turns out to be wrong.

The Bill of Sale and the assignments

The Bill of Sale transfers the tangible personal property at closing. An Assignment and Assumption Agreement moves the contracts the buyer is taking. An Assignment of Lease, when required and signed with the landlord’s written consent, moves the leasehold rights. Where the business owns trademarks or a registered business name, separate assignments move those with everything else.

The seller financing documents

Many small business purchases in the Willamette Valley are partly seller-financed. That adds a Promissory Note, a Security Agreement giving the seller a lien on the purchased assets until the note is paid, a UCC-1 financing statement filed with the Oregon Secretary of State to perfect that lien, and often a Personal Guaranty where the buyer is a newly formed entity with no track record of its own. Sometimes a seller requires additional security in the form of a Trust Deed recorded against real property owned by the buyer.

The business purchase checklist

1. Decide between an asset purchase and an entity purchase with your attorney and CPA before the Letter of Intent is signed, since the structure drives everything drafted afterward.
2. Read the Letter of Intent before signing it and identify which provisions are intended to be binding, including confidentiality, exclusivity, due-diligence access, and expense allocation.
3. Confirm the seller’s entity is active and current in the Oregon Secretary of State Business Registry.
4. Run a UCC lien search through the Oregon Secretary of State and check the applicable county lien records. For used business personal property, ask for the disclosure required by ORS 311.639 (or document if it is not provided) and complete the ORS 311.641 diligence, including the Secretary of State UCC search within three business days before closing.
5. Obtain a payoff letter or release for every lien the searches find, as a condition of closing.
6. Review at least three years of financial statements and tax returns with a CPA.
7. Inventory every contract and the lease, and identify which require consent to assign or contain change-of-control provisions.
8. Confirm which licenses and permits continue, require consent or transfer, or require a fresh application.
9. Negotiate the seller’s covenant not to compete, the nonsolicitation covenants, and any transition period while the negotiating power is still on your side of the table.
10. Build the consents, lien and tax-lien releases, license confirmations, and financing terms into the Asset Purchase Agreement as closing conditions before you sign.

Frequently asked questions

Should I buy the assets or the entity when buying an Oregon business?

Most closely held purchases are asset purchases. The buyer takes the assets it wants under an Asset Purchase Agreement, leaves the seller’s entity and its history behind, and generally gets a new tax basis in the purchased assets. An entity purchase can preserve contracts and licenses that are hard to move but brings the company’s full history with it. Decide with your attorney and CPA before the Letter of Intent is signed.

Is a Letter of Intent binding in Oregon?

Some provisions can be. The price and other business terms are often stated as nonbinding, while provisions such as confidentiality, exclusivity, due-diligence access, or expense allocation may be intended to bind when you sign. The document should say which provisions are binding, and a buyer should have it reviewed before signing.

Do I inherit the seller’s debts when I buy a business in Oregon?

Not automatically in an asset purchase. The buyer usually does not assume the seller’s ordinary liabilities unless the agreement says otherwise, but liens and certain statutory successor consequences can carry forward. A security interest can continue in the assets until it is cleared, ORS 311.641 has a specific diligence process for delinquent business-personal-property taxes, and ORS 657.480 can transfer unemployment insurance experience with an ongoing business. Searches, payoff and release requirements, excluded-liability language, and indemnification all matter.

Can the seller open a competing business after selling to me?

Potentially, unless the transaction documents restrict it. A covenant not to compete given as part of the sale of a business is outside the employment-specific restrictions in ORS 653.295 (1) and (3), but it still must protect the goodwill or business interest being purchased and be reasonable in scope. A carefully drafted sale covenant, usually paired with nonsolicitation provisions, helps protect the goodwill the buyer paid for.

How do I find out whether there are liens on the business I am buying?

Run a UCC lien search through the Oregon Secretary of State under ORS chapter 79A and review the applicable county lien records. If you are buying used business personal property, also ask for the seller’s disclosure under ORS 311.639 and complete the ORS 311.641 diligence, including the Secretary of State UCC search within three business days before the purchase. Any lien that affects the assets you are buying should be addressed with a payoff, release, or other closing solution before the money moves.

Do I need a lawyer to buy a business in Oregon?

Oregon does not require one, but a business purchase involves structure and tax decisions, lien and property-tax searches, consent requirements, and a closing set that standard forms do not handle well. A transaction attorney reviews all of it before you are bound, when problems can still be solved by contract or by walking away.

Buying a business in Salem, Keizer, or the Willamette Valley

Michael Paluska has handled business purchases and sales for closely held Oregon companies for more than thirty years, from the Letter of Intent through due diligence and closing. He works through the structure decision with the buyer and the buyer’s CPA. If the buyer does not have one, Michael can refer the buyer to a CPA he has worked with during his career. The goal is for the tax treatment to shape the purchase before the documents are finalized, rather than reacting to it after closing.

If you are buying or selling a business in Salem, Keizer, or the surrounding Willamette Valley communities, read more about the firm’s Buying & Selling a Business practice under its Business Law work, or call 503.585.2066.