Differences in Car Purchase Agreements: Entity vs Individual

How are the agreements different?

Experts say that purchasing a car from a legal entity is not fundamentally different from buying from a private party. In both cases the essential documents are the same: the vehicle title and a bill of sale.

The real distinction is that the contract is with a corporation rather than an individual. The document is signed by the chief executive or another authorized officer.

In the event of later legal complications, the outcomes tend to be similar whether the seller is a private party or a corporate entity, according to an autocriminalist expert.

If the agreement is signed not by the company’s head but by an employee, the signer must act under a power of attorney and provide a copy to the buyer. But a power of attorney carries risks because it can be revoked at any time.

Therefore, it is wiser to sign the paperwork directly with the company’s general director or chief executive.

Some organizations require approval for the sale of a vehicle fleet only after a positive vote at a board or shareholders meeting. Such nuances are outlined in the corporate governing documents.

If this is a car dealership

The legal entity that owns the car may be the dealer; it must be noted on the title. Salons often resell cars purchased from another private owner but not registered with the motor vehicle agency. In this case, the buyer must obtain a bill of sale between the dealer and the previous owner.

The dealer can act as an intermediary broker between the seller and the buyer, drawing up a commission agreement; this document should be collected by the final buyer.

Otherwise, the vehicle remains the property of the original owner, even if the dealership handles the process.

Dealers often do not register the car with the motor vehicle department, as it is not profitable to manage everything themselves. There is a risk that the seller could incur penalties toward the new buyer, and it may be difficult to challenge later.

Therefore, dealers may sell a vehicle directly to the new buyer, taking a commission from the previous owner to avoid taxes and penalties, according to a lawyer with the Freedom of Choice automobile movement.

In this arrangement, all rights the buyer has regarding the vehicle after the sale pass to the first owner.

Main risks

Experts warn that buying from a corporate seller carries many pitfalls that should be understood in advance. The first risk is a lien on the car. Today many legal entities acquire vehicles under a lease. The second risk involves a company that is in a precarious financial position or headed toward insolvency selling the car at a discount, says an auto lawyer.

According to the lawyer, a sale of a vehicle under bankruptcy procedures is typically considered invalid. The car could be seized by a court order and added to the bankruptcy estate, depriving the new owner of the vehicle and investment.

Recovering funds from a bankrupt entity is usually not possible, the lawyer notes. The automobile attorney adds that some dealers also offer financing, with cars used as collateral; if payments stop, repossession and insolvency actions can follow.

Autocriminalist Maxim Shelkov confirms that a corporate entity can collapse at any time. “A buyer might purchase a car today and the company could enter bankruptcy proceedings within weeks or months. All completed transactions could be reviewed,” the expert says.

How do you protect yourself?

The first red flag is a price well below market value. If a vehicle is offered 20 to 30 percent under typical prices, it may indicate the company is in distress. In that case, a lawyer from the Freedom of Choice group advises buying a car close to the market price and closely verifying the vehicle’s status.

Buyers should check for liens, trace how many times the car changed hands, and review when the company originally bought it. It is also important to see whether the company has any lawsuits or enforcement actions, as those indicate financial risk.

It is wise to verify the vehicle’s history using the VIN and obtain a lien or mortgage registry extract from the title office. If the car is not yet listed in the official records, this helps demonstrate due diligence and responsible behavior at the time of purchase.

Autocriminalist Shelkov adds that some entities with questionable reputations may try to sell cars, so careful scrutiny is essential.