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We have two notes on a small business we purchased in Oct 2010.

First note holder took business...
We have two notes on a small business we purchased in Oct 2010. First note holder took business. Second note holder is still owed. Second note holder has a tangible item as collateral in the note, however item is not worth full note amount. Second note holder is whom the business was purchased from originally. They received 70% of purchase price in cash, but never paid off the business creditors. Question is what is our liability?
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Answered in 7 hours by:
2/2/2012
Lucy, Esq.
Lucy, Esq., Attorney
Category: Business Law
Satisfied Customers: 31,008
Experience: Attorney
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Hi,

My name is XXXXX XXXXX I'd be happy to answer your questions today.

Did you agree to take over debts that the company owed at the time of the purchase? Does your contract say anything about accounts due, or something like that?

Also, what type of business was it? Corporation, LLC, partnership, etc?
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Customer reply replied 5 years ago
It is an LLC. The purchase agreement states previous owner is responsible for all debts and liens, which they have not satisfied. No we did not agree to take over any debts of the business at time of purchase.
Thank you.

First, in an LLC, the owners are typically not liable for the debts of the business, so the corporate form itself offers you some protection. If the creditors of the business tried to sue you individually, you could move to dismiss for that reason.

As far as the debts of the business go, as between you and the original owner, he is responsible for all of the debts that he agreed to pay. If he doesn't pay them, he is in breach of the contract for the sale, and you could sue him for damages. As between the business and the creditors, because the company is an LLC, the creditors can't sue the original owner - they have to sue the business, because the business is the legal "person" that benefited from the goods or services provided by the creditor. Unless the owner signed something promising to be personally liable (with the creditors), the creditors will have to sue the business. Then, the business can sue the owner personally for failing to pay the debts. But, it sounds like you no longer have the business, and you were never personally liable for those debts, so you shouldn't have to worry about it now. If the holder of the first note comes after you for any amounts HE pays to cover business debts, you can point him at the original owner, or bring the original owner is as a defendant in the case.
Lucy, Esq.
Lucy, Esq., Attorney
Category: Business Law
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Customer reply replied 5 years ago
Thank you, XXXXX XXXXX we understand what you have stated. Just to make sure though, our concern is that both notes were between individuals, not the company.
If you signed something agreeing to be personally liable, the creditors of the business may come after you. But, if the original owner signed an agreement where he agreed to cover those debts, you'll be able to sue him for any amounts that you end up having to pay based on his failure to do so.
Lucy, Esq.
Lucy, Esq., Attorney
Category: Business Law
Satisfied Customers: 31,008
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Lucy, Esq.
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