Reader Question: Can I purchase a business using a contract for deed?

One of the recent searches that led to the Bloomgren Hanson website asked the question, “Can I purchase a business using a contract for deed?” The searcher didn’t find their answer here (until now). The simple answer to the question is no, but that doesn’t mean you cannot accomplish the same result using different tools.

The answer is no because contracts for deed are a specific statutory scheme set up by the legislature as a vehicle for seller financing for the purchase of real property (land and the buildings and fixtures attached to land).  The statute does not apply to personal property.  The purchase of a business implies the purchase of either stock or assets and although it may involve real property it usually also consists of personal property.

The better question to ask is, “Can I purchase a business using seller financing that protects both the buyer and seller?”  The answer to this question is most definitely yes.  Usually it will involve a series of documents including purchase agreements, promissory notes, security agreements, stock pledge agreements, guarantees, and potentially mortgages (and maybe in the rare case a contract for deed just for the purchase of building or land).  The type of documents you will need depend on the specifics of the transaction and the needs of both the seller and buyer, but it can be done (and often is) with the proper foresight and legal advice.