Instead of starting a business from scratch, you may find it advantageous to buy an existing business with a proven track record. Although most sellers of businesses are trustworthy, occasionally purchasers of a business are victimized by fraud. If you are the victim of fraud in the purchase of a business, you may have three types of claims against the seller, each of which has different damages that you may recover and elements that must be proven. A fraud that consists of an untrue representation, knowingly made, regarding information that is material to the value of the business or a knowing or misleading concealment of this kind of information is common law fraud, also known as deceit. The proof of the fraud must be that the seller knew of the undisclosed condition or possibly that the seller was reckless or grossly negligent in not knowing about the condition.
Most jurisdictions also allow punitive damages for fraud.
If the fraud consists of a factual misrepresentation in the contract of sale for example, the seller overstates actual earnings there may be a cause of action for breach of warranty. The only proof required for breach of warranty is that the condition as represented in the agreement does not exist. If the seller knew that a contractually represented condition did not exist, fraud and breach of warranty are available. Both of the standards provide for consequential damages directly traceable to the fraud or breach. If the sale was structured as the sale of the common stock of the business being sold, both state and federal security law claims may exist.