When I Buy a Business, Am I Buying the Debts?



Video Summary




When I buy a business am I buying the debts? Well that all depends on whether or not you are buying the business entity, such as the stock in a corporation or if you are buying the assets.  Most of the business sales contracts that I review are a sale of the business assets, so you are not agreeing to pay any of the debts.  You simply contract to buy the good will, which is the name of the business, the phone number, the trade name, as well as the business assets; such as the fixtures, equipment and also inventory.  Usually with the accounts receivable, if you have those in a business, stay with the seller and so it's up to him to collect those monies. In an ordinary business transaction you do not assume the debts of the seller.


That is all specified in a contract for the sale and purchase of a business.  One of the big assets of a business is a lease, so you certainly need to be sure that you assume and the lease is assigned to you at the time of closing so you do not wind up with a business and not have the lease put into your name.  So you would be assuming that obligation.


You also may be assuming obligations if certain equipment is financed; that's another obligation you would have.  However, as far as vendors are concerned, such as your suppliers, then you are not assuming that debt. Although it is a good idea to verify that the vendors will continue to supply you with the product or whatever it is; even if the former owner of the property failed to pay them. That would be an impact on you, but you do not have to pay the debts of the former owner when you only buy the assets.


The utilities are something else that you need to be careful of; also sales tax. You need to make sure that there is no outstanding sales tax that could be a lien against the equipment, as well as tangible property tax.


Now you do assume all the debts of the business if you simply purchase the stock in a corporation.  Then you get all the assets and all the liabilities. You need to be careful when you sign the contract to address all these issues.


So if you would like to have me represent you or prepare a contract for the sale of a business well give me a call at 727-847-2288.