wants to retire

[riskybiz]

What is the name of your state? WI

My father and I are the only two shareholders in an S-Corp retail business. The business is nine years old and did pretty good the first seven. The last two have not been too good. Because of this the liabilities of the business have grown larger than the assets. My father is wanting to get out of the business and move south, mostly because my mothers health is not good.

My father understands that the business does not have any net worth or equity. He has agreed to sell his shares to me for $1.00 on two conditions. 1) That it is legal. 2) That he is no longer liable for past or future liabilities. I am interested in doing this and would definatley seek legal assistance to do so. However I would like to find the answer to a few questions before I get too carried away. If anyone knows the answers from past experience or just from knowledge of the law I would be very grateful to hear your responce.

Here are my questions

1) Would this be a legal transaction?

2) Is it possible to have him removed as a Personal Guaranty with creditors and suppliers? If so, Is it a choice of each supplier/creditor wether to accept or not?

3) If we have suppliers that we do not have any payables due to, can we submit some form or letter advising them that all future purchases will no longer be backed by his personal guarantee, therefor relieving him of any future liability?

and lastly,

4) Could this be considered a "red flag" to suppliers, causing them to put the business on COD or CBD on future orders?

Thanks for your time!

 

[JETX]

"Would this be a legal transaction?"
*** Depends on a LOT of factors, but probably.

"Is it possible to have him removed as a Personal Guaranty with creditors and suppliers? If so, Is it a choice of each supplier/creditor wether to accept or not?"
*** Only with their express written permission and waiver of his liability.


"If we have suppliers that we do not have any payables due to, can we submit some form or letter advising them that all future purchases will no longer be backed by his personal guarantee, therefor relieving him of any future liability?"
*** Again, if he has a personal guarantee on file, even with a current zero balance, you will need to get their express written permission to waive his obligation.

'Could this be considered a "red flag" to suppliers, causing them to put the business on COD or CBD on future orders?"
*** Of course it could be.

And one final issue for you.... most (all?) states require that a corporation have more than one shareholder. If you become the ONLY shareholder, you will likely lose your corporate charter.

 

[riskybiz]

Thanks for your reply JETX.


The main reason we incorporated was to avoid personal liability with suppliers and such. We soon learned that we had to sign personal guarantees in order to open accounts. So I am not sure what is the advantage of staying incorperated would be. I also would down size the operation in hopes of making it a profitable business once again. Therefor I might be just as well of to switch to sole proprioter.

I never really thought about selling shares to anyone else before. Are there investers that would buy shares in a business that has been profitable in the past but not currently?

How would one go about getting an "express written permision to wave personal guarranty"? Would it be a form we have drawn up and submit to each supplier, along with a statement saying we would no longer use suppliers who do not agree to the release of obligation?

It almost seems easier to close the business and reopen under a different entity. I guess that would not set too well with the ones we have balances with.

Would it be easier to get them to agree if we showed them that he does not have any assets that they would be entitled to if we defaulted?

Sorry if I am ranting on too long. What type of Attorneys should I look for? Do attorneys have a question and answer session to determine what direction we should go before hiring them? Or do we just have to lay out some cash even though we don't know what direction they will suggest? That is a bit scarey for me.

Thanks again. I'm gald I found this forum.

 

[JETX]

"I never really thought about selling shares to anyone else before. Are there investers that would buy shares in a business that has been profitable in the past but not currently?"
*** I am sure that there are venture capitalists etc. that do that. However, no I will not act as your broker.

"How would one go about getting an "express written permision to wave personal guarranty"? Would it be a form we have drawn up and submit to each supplier, along with a statement saying we would no longer use suppliers who do not agree to the release of obligation?"
*** Simply, send the creditors a letter detailing what you are proposing to do. Include a form that you make up (or have an attorney make for you), simply confirming the release of the individual party from further liability and to transfer all that liability to you. It would be very likely that they would ask you to provide current credit information and to sign another personal guaranty on any future debts. They would likely NOT release the guarantors on the existing debts.

"It almost seems easier to close the business and reopen under a different entity. I guess that would not set too well with the ones we have balances with."
*** And it won't do any good. Remember those personal guarantees you mentioned signing??

"Would it be easier to get them to agree if we showed them that he does not have any assets that they would be entitled to if we defaulted?"
*** Nope.

 

[hexeliebe]

Outside of what JetX has explained to you, if you need time to find additional financing and to arrange with the creditors and if your father needs the money, why don't you simplify this process and buy all but one share from him.

Although this won't alleviate the personal guarantee situation, it will give you time to find financing and will give your father the funds he needs.

 

[JETX]

Check your states corporate laws. Most corporations require more than a 99%-1% ownership. Also, they require officers, board of directors, annual meetings, minutes, etc.

They can be found in Chapter 180 through 182 at:
http://www.legis.state.wi.us/rsb/Statutes.html