Corporate Law Buying into business

[kprough]

My husband and I are seriously considering buying into a business. The current owner is the previous manager of two of the places my husband worked in the past. We think he is a great guy, honest and hard-working. He has found employing motivated, honest people is a challenge, and wants to bring my husband as a partner, and get rid of his current help. My questions are:
1) How do we dissolve his current corporation? What type of corporation should we set up - S or C?
2) What type of document should we draw up to detail out how our "partnership" will work?
3) How can we verify the list of outstanding debts he has provided is a complete list?
4) What else should we do to protect ourselves, in case things were to go south with the business or our relationship?

Thank you for your advice.

 

[seniorjudge]

1) How do we dissolve his current corporation? What type of corporation should we set up - S or C?

A: Why do you want to dissolve his current corporation? The type should be determined by your tax CPA who you hire and talk to BEFORE you plunk one cent down.


2) What type of document should we draw up to detail out how our "partnership" will work?

A: If you want a partnership (although you were talking about a corporation in your first question), then you draw up a partnership agreement. I think you are terribly confused so the next person you should hire and talk to BEFORE you plunk one cent down is a seasoned business lawyer.


3) How can we verify the list of outstanding debts he has provided is a complete list?

A: You ask the seller for permission to contact all the people he listed; you also audit his books.


4) What else should we do to protect ourselves, in case things were to go south with the business or our relationship?

A: Previously answered.

 

[David_Staub]

4) What else should we do to protect ourselves, in case things were to go south with the business or our relationship?

A: Previously answered.

By that, seniorjudge means hire "a seasoned business lawyer." I agree.

There are many things you can do, but they can't be boiled down in a few pithy instructions. The first and most important is to do what is called "due diligence." Other steps can help protect you after the fact, but as Ben Franklin said, "An ounce of prevention is worth a pound of cure."

Other steps, such as how you structure the entity, what representations and warranties your "partner" makes and how those are backed up so that they are not worthless promises, are ways out of problems that are better avoided. A good business lawyer can help with all of those (and should be able to give you advice on your due diligence investigation as well).