GENERAL AREA: Internet domain name sale and related issues. Nothing to do with the name or registering it..
I am considering the purchase of a 17 year old Internet domain/website and have 4 questions in two areas of concern
-- I am a knowledgeable, internet savvy entrepreneur.
-- I have been a member of the website for over 10 years and am very familiar with it
-- The seller is well known to me for many years.
-- Seller is about to get a major windfall of cash and property. So he is looking to get out and move on ... It's been 17 years
TRANSACTION RELATED INFO
-- Website is an escort advertising, review and discussion site.
-- Five years of verified gross annual revenues $200,000 +/- primarily from membership and advertising sales
-- Expenses virtually nonexistent ... Less than $300 a month ... For credit card processing fees and hosting
-- The website basically "runs itself" requiring less than an hour a day
-- Tremendous growth potential. The seller has not upgraded the software or done any marketing in several years.
-- $500K++++ / year realistic without much additional time or money for me
-- Sale price: $400,000 ... Heck of a bargain ... You will soon see why
-- The Corporation
, a Nevada subchapter S is defunct for nonpayment state fees.
-- From 2005 - 2009 the seller sold shares to a total of six people. Three friends, One family member, and Two website members.
-- Total shares sold: Approx 35% of all shares
-- The single largest shareholder
owns 20% ... Let's call him "Joe". He is a member of the website
-- Range of sales: $5K - $25K
-- The domain is the sole producing asset of the defunct corporation
-- The Share Sale Agreement stated that their investment
was to fund the expansion of the site.
-- Profits from the existing local operations were exempt.
-- No dividends or profits have been disbursed to any of the shareholders
-- None of the shareholders have complained or even inquired about their investment for "several years" .. I believe this to be true
-- None of the shareholders know each other
-- The domain is currently registered in the seller's personal name
-- Up until recently it had been in the Corporation's name
*** The seller will not provide any specific information about any of the investors *** This is OK ... Since this is an escort site, he does not wish to compromise privacy. In this case anonymity is far more important here than on almost any other website type I can think of.
For various reasons .. that have nothing to do with the corporate mass ... we both agree not to announce the sale for at least six months .. Even to the shareholders
IMPORTANT DISTINCTION: Forgive me for stating the obvious but ... This transaction is the purchase of an asset of the corporation ... Not the Corporation
Let's say the sale completes without incident. I own the domain and am running the website just fine.
if upon learning of the sale one or more of the shareholders became disgruntled I can see how they might have a case against the seller.
QUESTION: Let's say I have not made any enhancements to the site. Would they have a WINNABLE cause of action
against me? If so… For what?
QUESTION: Let's say I have successfully grown the site ... which the seller had been unable to do ... Could any of the shareholders then have a claim against me? If so… For what?
EXPERT LEVEL QUESTION: Could "Joe" somehow get ICANN to suspend the domain citing fraud or malfeasance ... or some other nasty thing?
-- The seller has indicated that he has "serious tax problems"
-- His tax problems extend beyond this Corporation
*** Seller claims that his recent windfall will allow him to solve his tax problems ... "soon" ***
*** Seller claims that the IRS is UNAWARE OF HIS PROBLEMS ... He has never been audited or even received a threatening letter. ***
*** He feels that his recent windfall will bite him on the ass once he shows up on the IRS's "radar" ***
BTW: He has promised to give the full disclosure on this in the day or two.
QUESTION: Let's say the impending windfall never materializes ... and / or ... the IRS just gets a bug up their ass about him ... could the domain be confiscated or otherwise negatively impacted well after the sale?
Remember: he claims he's not even in trouble yet. So this would be presumably many months down the road, if at all.
WORTH NOTING: None of the short tax forms I have ever seen ... including the W-2 forms from credit card processors ... ask for or list a website domain name or URL.
If we assume that the seller has either underreported income or not paid tax altogether, it makes me wonder if the IRS could readily "connect the dots" back to the Corporation unless the seller tells them.
-- $100,000 of the sale price will be kept in escrow for 6 - 12 months in case there are problems with the "title"