Are you thinking about buying a restaurant or any other business? Your first major issue is to decide exactly what you are buying. Consider the following example.
“Tony” started a neighborhood Italian restaurant in Seattle over twenty years ago. His Seattle business lawyer helped him incorporate the business as “A Little Taste of Italy Inc.” Now, after some years of success, Tony wants to sell the business, retire, and move back to Italy.
You have been working for years as a Chef at several restaurants in Seattle. At your most recent job, your boss lives most of the year out of town and has left you in charge. You have experience in running every phase of a restaurant and dream of owning your own restaurant.
A common approach is to talk with Tony about how much he thinks the business is worth, how many years are remaining on the lease for the Seattle restaurant, and perhaps even discuss a price. However, at this stage, most buyers do not think about one of the most important issues: Will you buy Tony’s stock in A Little Taste of Italy Inc. or the assets of the business?
Does it make any difference to you as the buyer whether you purchase Tony’s stock or the assets of the business? The answer, most definitely, is YES.
Stock Purchase
If you purchase Tony’s stock in the corporation, here’s what you may receive, in addition to the assets of the business:
- Any potential lawsuits and other types of claims which may be filed against A Little Taste of Italy, Inc. based on events occurring long before you bought it.
- Duty to pay possible federal and state taxes which may result from an audit in the future, but relating to activity which happened prior to the sale.
- Hidden claims for back wages, discrimination, creditor’s claims, and other disputes.
When you purchase the shares of “stock,” all of the history and prior decisions made by the corporation become yours. From the viewpoint of creditors, government agencies, and injured parties, A Little Taste of Italy, Inc. is continuing to operate the Seattle restaurant, regardless of who owns the shares, even if you change the name after you purchase the stock.
In general, as part of purchasing the stock of an incorporated business, you get all the assets and also all of the debts, some of which may be unknown at the time of sale.
Asset Purchase
Fortunately, there is a way to reduce the risk of being responsible for these hidden claims: an “asset purchase.”
- When you purchase the assets of A Little Taste of Italy, Inc., you buy only the assets you select, and not any hidden or unknown claims.
- In an asset purchase, you get only the items described in the Bill of Sale — furniture and fixtures, inventory, customer lists and the location secured under a valid lease.
Therefore, in most cases, when you only buy the assets of a business, you are free of hidden claims of creditors, former customers and employees, and government agencies.
If you need the assistance of an experienced Seattle business lawyer or Seattle restaurant lawyer, please call Stephen M. Katz at (206) 525-5500.
