Acquiring an Already Established Company: Advantages and Disadvantages

Choosing to acquire an already established company (through purchase or lease ) naturally has advantages and disadvantages. Here we will consider only the purchase for simplicity.

The benefits of buying.

Since these are companies already operating and inserted in the market, and have historical data available, it is easier to make reliable forecasts regarding the company’s ability to produce sufficient income. It is therefore possible to establish in a short time the degree of risk and convenience of the investment.

A further advantage is that, compared to a company born from scratch, the “running in” period is much less demanding in terms of technical complexity, costs, and time.

Finally, by purchasing an already established company, you also acquire a ” name ” and a loyal clientele (which, however, must be maintained and consolidated over time).

The disadvantages of buying.

To evaluate the convenience of such an operation, it is necessary to consider not only the purchase cost (equipment, warehouse, trademarks and patents, personnel, any debts, etc.) but also the transformation cost.

The error which is easiest to make in situations of this type is that of believing that the original structure can be left unchanged. Adjustment interventions, however modest, are always necessary.

Consequently, even if the price is attractive at first sight, the purchase can still be disadvantageous when the adaptations and improvements to be made to the structure are particularly significant.

Setting up a new company: advantages and disadvantages

The considerations that can be made on the establishment of a new company are diametrically opposite.

The disadvantages of the constitution.

The main disadvantage is the absence of any experience and the consequent difficulty of making reliable predictions. Furthermore, in the case of a completely new company the costs and start-up times will be particularly demanding. It will then be necessary to make oneself known and acquire customers starting from scratch.

The advantages of the constitution.

The main advantage is the possibility of creating a more modern and “ad hoc” structure, i.e. one that is better suited to the objectives of the new entrepreneur.

Another not indifferent advantage is a lower initial investment: in fact, we will only pay the indispensable costs to start without taking on the entire expenses inherited from the previous company, as well as the so-called “start-up value” 1 which often has a heavy impact on the cost of purchase.

The initial size

Whatever the method of acquisition, it is necessary to establish the optimal size of our company: which mainly means deciding the number of production factors (personnel, plants, equipment, etc.) to be employed in the company.

The problem of the right size is not typical only of the constitutive phase but constantly recurs throughout the life of the company. It can never be considered definitively resolved. In any case, the inspiring criterion must be that of maximum possible flexibility: it is necessary to create a structure capable of adapting without trauma to the continuous change of external conditions.

In general, however, given the company’s situation of extreme vulnerability in the first moments of life, it is advisable to act with prudence. Better to limit the size at the beginning, reserving the right to increase them only when the company is already consolidated and has demonstrated that it can bear the costs of new investments.

It doesn’t matter to establish right away what the optimal company size is. What is fundamental, rather, is to set the problem rationally right from the start, preparing the conditions for possible subsequent adaptations. Indeed:

  • the expansion of the initial dimensions, if suitably prepared, is completely physiological ;
  • a forced downsizing represents an extremely negative fact and is the result of incorrect planning from the outset.

In certain cases, however, it may be preferable to oversize certain production factors right from the start: for example, for certain plants or machinery, it may be difficult to subsequently make the necessary expansions.

The production capacity reserves that are created in this way must, however, have a “functional character”, that is, be sustainable from an economic and financial point of view and be established based on a good probability of future use.


This is another issue of central importance. It depends on several factors:

  • proximity to the supply markets (where raw materials are procured) or outlet (where the finished product is sold);
  • the presence of infrastructures (motorways, railways, aqueducts, electricity lines, telephone lines, etc.);
  • the availability of qualified personnel in the area;
  • the possibility of accessing the concessions provided for certain territorial areas ;
  • the availability of premises in a given area. The location is often chosen based on the fact that the premises where the business activity could be carried out are already owned. This criterion, even if it appears to be the cheapest, can turn out to be counterproductive because it does not necessarily correspond to the optimal location;
  • the presence of environmental or other constraints, which make a certain company location inconvenient or impossible (a cement plant in an area of ​​archaeological or naturalistic interest; a plant for the treatment of radioactive waste in a nuclear-free municipality).

In general, these factors have different importance depending on the type of activity carried out: for a textile company, for example, proximity to a watercourse is essential; for a luxury shop it is important to be located in a prestigious area such as the city center; for a courier, the ideal location is near major motorway junctions.

The legal status

Another important problem in the company establishment phase is represented by the legal aspects.

The company can be legally structured in different ways. In the choice we will have to make, it is good to be careful: a legal structure that is not suitable for the type of activity we carry out can compromise the success of our company.

Changing legal forms is possible, but it is expensive and involves problems, including fiscal ones. For this reason, it is better to be far-sighted and choose right from the start a legal form that is suitable not only for the present but also for the future of our company.

There are many variables to take into account when choosing the legal form to give to the company. But the underlying problem can still be summed up in one question:

Alone or in the company?

The simplest form is that of the sole proprietorship (which can also take the form of a “family business”). If, on the other hand, two or more people agree to carry out an economic activity together, we are dealing with a collective enterprise, i.e. a company.

The sole proprietorship

A sole proprietorship is a business headed by a single owner. Whoever promotes the activity and is solely responsible for it is the entrepreneur, who fulfills the formalities required by the law “in his name”: all the obligations that arise from the activity belong to his person, who remains for third parties the only reference. In this form of management, the business risk extends to all of the entrepreneur’s assets.

The sole proprietorship can also be managed with one’s family members, according to various legal schemes. An interesting possibility is that of a family business. In this case, the family members who work in the company are neither employees nor partners of the entrepreneur, but ” collaborators “.

From a legal point of view, the family business remains an individual business in which only the owner with his assets can meet the obligations towards third parties.

Advantages of the sole proprietorship

In principle, the sole proprietorship (improperly called “sole proprietorship”) has the following advantages:

  • greater flexibility and speed of decision ;
  • lower administrative and accounting costs and charges.

It should be noted, however, that while one can be a member of several companies, one cannot be the owner of more than one sole proprietorship.

So, for example, anyone who decides to add a commercial activity (e.g. shoe sales) to an artisan activity (e.g. shoemaking) and intends to exercise both individually, cannot have two sole proprietorships but will find himself having a single company with two activities, with a series of consequences in terms of taxation, contributions, etc. which is always good to evaluate carefully before starting the operation.

The Society

If two or more people agree to carry out an economic activity together to divide the profits, we have a collective enterprise, i.e. a company (art. 2247 of the civil code).

Each shareholder should ” confer goods or services “: that is, he must make a contribution to the company in one or more of the following forms:

  • Cash;
  • credits;
  • assets in kind (premises, equipment, etc.)
  • labor services (for some types of companies).

In general, this agreement formally results from a document called the “deed of incorporation”, supplemented in certain cases by another document – the “statute” – which dictates the general rules for the functioning of the company and the corporate bodies.

In the case of the collective enterprise, therefore, it is necessary:

  • the signing of a company contract between two or more people for the performance of economic activity;
  • the effective common exercise of the activity by those who took part in the agreement: that is, all the shareholders participate in some way, directly or indirectly, in the management (even if this is entrusted to someone in particular, this still happens by the will of all members).

Company benefits

Contrary to what happens for the sole proprietorship, the company allows you to:

  • share the risk and weight of choices with others ;
  • acquire necessary capital and labor which, especially at the beginning of the business, is difficult or risky to find otherwise.

When the operating profit begins to be significant, the company also has tax advantages, allowing the distribution of income in equal parts among the shareholders (so-called reduction of the rate: less imputed income per capita = fewer taxes).

Opting for an individual or collective enterprise, and in the latter case choosing one type of company rather than another is not a decision to be taken lightly: as mentioned above, a wrong legal form can jeopardize the success of the initiative. If you do not have direct skills, it is advisable to consult a trusted professional; the notions that have been given up to now and those that follow, relating to the different types of companies, are used to be able to “talk” with the consultant, so as not to be forced to trust with your eyes closed.