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Can The New Owner of a Business be Sued for the Actions of a Previous Owner?

When you purchase a business, you want to make sure you are aware of any potential problems or issues that could lead to unforeseen expenses. If a business has liabilities they do not go away, even if the business is sold. As the buyer of an established business, you will need to be aware of any debts, including potential lawsuits, that the new owner might be responsible for later. This is called successor liability. An experienced attorney will help evaluate and prevent successor liability prior to purchasing a business.

What is Successor Liability?

Successor liability is the legal responsibility of a business successor for the obligations of a previous owner. When a business merges with another, is acquired or is sold, the new owner may be responsible for the financial obligations that were already part of the business. Some common types of liabilities include tax debts, taxes, and lawsuits. A new owner may be liable for these debts, which could be substantial.

What Can Happen to My Business?

Many problems can stem from having unknown debts and other liabilities when you purchase a business. If you buy a business thinking that you will have a specific income and are suddenly hit with the realization that you owe additional debts, it could have a devastating impact on your business. One of the most expensive liabilities is a lawsuit because you may need to pay quite a bit of money to defend the charges. If found liable in a lawsuit, your company will need to pay the debt. For some businesses, this could be crippling.

How Can I Prevent Successor Liability?

As the buyer of an existing business, you will want to take steps to ensure that you minimize or eliminate liability for debts or obligations left by the previous owner. It is essential to take a deep dive into the business before you sign the purchase agreement. As a buyer, you will want your attorney to go through the business records with a fine tooth comb. If you note any issues you can then negotiate a resolution prior to finalizing the purchase. You may also want to have appropriate insurance in place that will effectively provide a safety net in the event that matters such as these crop up.

Help From an Experienced Attorney

An experienced attorney is critical when buying a business. Your lawyer will provide guidance throughout the process. In addition, your attorney will know how to review business records to ensure that there are no outstanding matters that could be cause for concern. If so, your attorney will assist with negotiations to resolve issues favorably. You can go into a new business with peace of mind, knowing that you are taking over a business without any hidden potential liabilities.

If you are considering the purchase of a business, you can count on our skilled legal team to assist you through the process. To learn more, contact us at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or online.

Published June 3, 2024
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