When buying a business, you might be concerned about whether you’ll inherit any debts it owes to other businesses or individuals. This is an important thing to consider in order to ensure you don’t end up making a loss through acquiring the business.
Inherited Debts – Asset Sales
Whether you inherit a business’ debt or not depends of how you acquired it in the first place.
If you buy a business through an asset sale, you won’t inherit its debts. The business still exists as a legal entity responsible for its original liabilities. You haven’t bought the business itself, just assets associated with it, e.g. trade marks, patents, product designs.
Sometimes liabilities can appear after a business has been sold. If HMRC runs a compliance check and decides that the selling company owes further taxes, it is their responsibility to pay these taxes, not yours. If a dismissed employee wishes to file a legal complaint against the selling company dating from before the sale, this remains their problem and you do not inherit it.
It’s important to read through all documentation carefully when inheriting a business. It’s possible for you to inherit debt if you explicitly agree to do so (e.g. if this will allow you to acquire the company at a lower price). Check that you won’t legally be held responsible for any debts other than ones you’ve explicitly agreed to take on. It’s sensible to employ an accounting firm such as accountants Swindon to check business accounts for you and save you any possible future headaches.
Inherited Debts – Share Sales
If you buy a business through a share sale, you’re effectively buying shares in the company – it’s just that you’re buying 100% of the shares. When purchasing a business through a share sale, you inherit all existing and future liabilities. This includes debts.
When planning to buy a business through a share sale, it’s sensible to check whether any lawsuits, bankruptcy filings or other complaints have been filed against it. In cases like this an accounting firm such as accountants Swindon based can help you understand exactly what debts you’re inheriting and how best to deal with them.
Regardless of whether you’re planning to acquire a business through an asset sale or a share sale, it’s vital that you understand the possible risks.