Buying a C-Corp

[Bear75]

What is the name of your state? TX

Myself and a partner are looking at buying a company that is a C-Corporation. The company has 2,000 shares of stock of which 1,000 are allocated between two business partners. From reading on here it definatley makes more sense to purchase the companies assets and not the shares of stock from a liability standpoint. If we did that:

1. What would happen to the current 2,000 shares? Would both the current owners still have an investment in the company?
2. Could we allocate new stock?
3. Is it possible just to change completely the type of company it is now? Ex taking from a C-Corp to like a LLP?

We are definatley going to seek an attorney in this situation but we are just looking for these answers to see if it is even worth us pursuing. Thanks in advance for any advice I can get.

 

[Zigner]

If you buy the assets only, then you are not buying the company, per se. You could form a new corporation of your own. The former owners would dissolve the old corp.
This is just an overview - more knowledgeable people on here will give you more detailed information.

 

[tranquility]

Zinger is exactly right. When you buy the assets, you have bought the assets. Widgets, intellectual property and the like are all things which can be bought. If you buy the assets:

1. Who cares what they do with their shares? The other owners will have a C-corp with a bunch of cash in it.

2. Only if you start a corporation of your own and fund it with the assets you've bought.

3. Since you just have stuff, you can create any appropriate entity to hold that stuff.

 

[Bear75]

Thank You for your advice. I think I know this answer but a followup question would be if we did form a new corporation could it have the same name?
Ex.. (old company) Company A, INC
(new company) Company A, LLP

This is important because of current website address and etc.

Thanks for your advice.

 

[tranquility]

A few things. First, get an agreement from the parties you are buying things from that you can use the name with their permission. See a lawyer on the precise wording. You don't want them to later raise some intellectual property issue with you on this. At the same time, you want the agreement to be binding on them. You don't want them to be using the name in a way which would confuse *your* clients.

Second, I have a certain uneasiness about using many of the same things like web addresses without buying the actual corp. Here's why. You don't want some fraud accusation against you by a client who later claims he thought your little company was the old company and relied on that to give you business. That does not mean you cannot do this, it's just that that would be a concern you should explore with your legal advisor.

 

[DStaub]

Usually using the same name with the only difference being an "LLC" rather than an "Inc." at the end will only be possible if the seller of the assets changes its name (at least if you are both in the same state). Most states would not view those names as distinct if they were otherwise exactly the same. Your agreement with the seller should specify that they will either dissolve the old company immediately after the closing or change their name (they almost always coohse the latter since few are prepared to wind up immediately after the sale).

As to whether you should use the same name, your lawyer will explain this in more detail, but buying assets does not not necessarily protect you from ALL of the liabilities of the seller. Tranquility points out one issue, though it is not one that I particularly worry about in most cases. Depending upon the type of business and how your state's law has developed, there may be "successor" liability for a variety of claims including product liability, environmental liability and age discrimination in employment, to name a few.

Taking the exact name of the selling entity is not likely to be the single determining factor, or even the most significant factor, but every way that you distance yourself from the old business may help. On the other hand, most businesses acquisitions include a substantial premium for the intangible value of the goodwill. The name is usually a significant factor in the goodwill, so you have to weigh the advantages and disadvantages.

I have worked on hundreds of acquisitions over the years and I can't think of a single time when the decision to continue the name or not was based on legal issues, though it came into the discussion occasionally. The decision always boiled down to business issues such as corporate branding.

 

[tranquility]

If I buy the old computer of a corporation, I need to worry about product liablity, environmental liability or age discrimination? I don't think so. Only if I were to buy land would we have the environmental liablity issue. Otherwise, I'm buying the asset and not the corporation. Why would those other things flow with an asset purchase?