business purchase

Discussion in 'Growing and Managing a Business' started by jimmehhh, Feb 14, 2012.

  1. jimmehhh

    jimmehhh
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    I have a general question.

    I am going buy into a business (retail/service) and the current owner is owed a couple thousand dollars from a shareholders loan. The current owner will sell half the business to me. What is the best way to come to an agreement on the money owed to the owner? I don't want to absorb this liability as it will directly affect how much we can pay ourselves.

    Oh also hello everyone!
     
  2. Sahil

    Sahil
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    Hi Jim,

    Welcome to Business Advice Forum. Now regarding your query, I assume that you and the current owner will be starting up a partnership firm. So, before signing the agreement you can discuss with the current owner to pay complete liability of the firm if it is possible for him or you can mention in the agreement that there is X amount of liability before the partnership firm came into existence and that liability is going to be paid by the previous owner of the firm.

    Just make sure, you get everything mentioned clearly and discuss everything with the current owner before signing the agreement so you'll be on the safer side also make sure you consult with an Lawyer who will be careful of all the laws and regulations in your region.

    Also, do let us know if you've any other doubts or queries.

    Good Luck!
    Sahil
     
  3. marymiller

    marymiller
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    Welcome to Business Advice Forum.
     
  4. cesspadilla

    cesspadilla
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    I actually don't have enough knowledge on the topic although we need to know where are you from because it depends on what state or country. I did find a document titled: Allocations Of Partnership Liabilities And NonCourse Deductions that may help you with your question: sutherland.com/files/Publication/78f8568f-af6a-4961-856f-0a4216f75590/Presentation/PublicationAttachment/b6a8d3be-c4db-40e1-888b-32ae58420cc2/ABIABA.PDF - I hope it will be of help.
     
  5. firstchoicecar

    firstchoicecar
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    Well you must consult in an legal expert about this one.
     
  6. Fergal

    Fergal
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    Welcome to Business Advice Forum jimmehhh! I'd suggest that the loan to the current owner is removed from the books before you buy into the business. Perhaps the business has the resources to pay off the loan (the fact that the business would then have less resources could be reflected in how much you pay for half the business) or the loan could simply be written off.

    Another option would be for an equivalent amount of your purchase price to be given as a Director's loan to the business from you. For example, if the loan to the business from the other partner is $2,000 and you buy half the business for say $10,000 - $2,000 of that purchase price could be given as a Director's loan from you. That way the business doesn't have to pay any money out just yet and it puts both you and the other partner on an equal footing.

    Good luck with it and please let us know what you decide.
     
  7. amac

    amac
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    Agree. Definitely one for a solicitor or lawyer.
     
  8. Business Attorney

    Business Attorney
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    If you are buying a part of a business from the person who currently owns 100% and is owed money by the business, the usual thing is to get the loan off the books before you buy in. That could either be done by paying off the loan, canceling it or contributing it to the business.

    Sometimes there are reasons that the loan needs to stay on the books (usually for tax reasons but sometimes for other reasons). In that case, the debt reduces the value of the business like any other debt would, and should be reflected in your purchase price.

    For example, say that a business would be valued at $30,000 looking only at such factors as income, cash flow and assets. However, the business owes someone (whether it is the owner, a vendor or a bank) $10,000. Now the business is only worth $20,000 (that is, 30K minus $10K). Your half should only cost $10K (half of $20K) rather than $15K (half of $30K).

    In either case, you should come out the same.
     
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  9. jackflaming

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    I think you should take help from some broker. they have good experience in this such matters. I also had taken help of a broker while selling my business and it was quite beneficial so you ca also do the same.
     
  10. Henry_Jakson

    Henry_Jakson
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