Liabilities of legitimizing troubled business.

[Briano]

My father in-law has asked me to help him with his single product business. I've learned that his labeling says it is 'Patent Pending' and that his business name is 'Incorporated' when neither of these things are true. He has also never filed taxes in the last 8 years and is using an invalid Federal Tax ID#. Do you have any idea of the penalties involved here?

How do I save this business or product without incurring personal liability for activities prior to my involvement?

My personal opinion is that he should sell the assets of his business to a new corporation I create in order to save the product

Thank you.

 

[HomeGuru]

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:</font><HR>Originally posted by Briano:
My father in-law has asked me to help him with his single product business. I've learned that his labeling says it is 'Patent Pending' and that his business name is 'Incorporated' when neither of these things are true. He has also never filed taxes in the last 8 years and is using an invalid Federal Tax ID#. Do you have any idea of the penalties involved here?

How do I save this business or product without incurring personal liability for activities prior to my involvement?

My personal opinion is that he should sell the assets of his business to a new corporation I create in order to save the product

Thank you.<HR></BLOCKQUOTE>

You are on the right track. a separate legal entity should be set up and an attorney should draft a Buy-Sell Agreement which specifies that the purchase is an asset only purchase (patent, goodwill, FF & E, product etc.) and that the Buyer assumes no liabilities whatsoever including but not limited to State and Federal taxes, credit accounts, rent, etc. Check to see what name the patent is registered under. Is it registered under a name of an indivdual or a corporation. There may be a problem if it is registered under the corporation when the corporation is not a legal entity registered in the State.

You should consult with a tax attorney on the tax issues. Why worry about it since it will be none of your problem unless the proceeds from the sale will be used to pay his taxes and accrued interest and penalties. Be sure to get a Federal ID # for your new company.