buying a company and its risks

buying a company and its risks

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I am considering taking over a company by buying all the shares and taking over as sole director with a relative as coy secretary. Will i be liable for any debts that the Company has before I buy the shares and become Director?
Ted Homan

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By JDBENJAMIN
28th Oct 2005 18:20

Get advice!
Have you considered actually paying an accountant to advise on this matter? It is obviously what you need. It will be expensive, but not doing so will almost certainly cost you more. Have you seen the film 'Secretary'? She was a coy secretary too until she was spanked!

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By Richard Willis
27th Oct 2005 08:46

Entity, Entity, Entity!!!
Hi Ted

I fear, by the way that you have phrased your question, that you do not understand the status that a company holds in law. Essentially a limited company stands alone as an entity in law. This means that it can enter into contracts in its own name, and can sue and be sued for valid debts.

As already stated, this does not change simply because its ownership changes; money owed by and to the company will still be so after the sale UNLESS there is something in the sale agreement that states that the seller will clear up such matters before the transfer. However such things are usually reflected in the share price, based on a multitude of factors including the net worth (after all debts etc.) of the company.

The result of this is that, unless you can be seen to have acted recklessly or illegally, you as owner will have only Limited Liability ('Limited' company) for the debts of the company. HOWEVER you still need to take specialist advice about this, because any nasties that pop up could still finish the company off or cause it severe heartache. If you don't believe me, do a bit of research on the Federal Mogul Corp. in the USA & elsewhere!

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By AnonymousUser
26th Oct 2005 12:56

yes
If the company has debts they dont go away just because shares change hands.

You may have some leeway if the debts are guaranteed by the current directors though.

You could also buy the business rather than the company. That might or might not make sense depending on the type of business / assets / staff etc.

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By jamesbailey
26th Oct 2005 13:15

Buying a company
Unless the company's trade and assets are VERY simple, you really need professional advice about this.

When you buy a company, its history comes with it, including any skeletons in its cupboards.

It is for this reason that you need someone to do "due dilligence" for you - essentially, asking the right questions to flush out any nasties. The sale agreement can then be drafted to deal with what happens if any other skeletons emerge - typically, by getting you a refund of part of the purchase price.

If you were buying a house, you'd get a surveyor in.....

James Bailey
Chartered Tax Adviser
[email protected]
01822 810169

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By User deleted
26th Oct 2005 16:21

Coy secretary...
For a moment there I had such interesting pictures in my head. In fact, I wanted to go out and get myself a coy secretary.

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By kerpang
28th Oct 2005 13:46

Indemnity / guarantee
It is usual to ask the current shareholder/director to indemnify against any other debts that are not disclosed during the process, if they arise.
Of course, the indemnity is only good if he/she has asset to back it up...
Buying asset is always safer (but usually bad for the seller as it incur CGT and cannot use business taper relief).

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