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San Jose business tax attorney for successor liabilityMaking the decision to purchase an existing business can be an exciting and lucrative endeavor. Owning your own business allows you to have a great deal of independence and direction over how the business is run. Being your own boss and watching a business grow and develop can be especially rewarding. Of course, buying a business is not without risk. One of these risks is successor liability for any debts owed by the business, including tax debts.

Stock Purchase Versus Asset Purchase

When you buy an existing business, you have two options: an asset purchase or a stock purchase agreement. A stock purchase allows you to buy most of the seller’s shares, or in the case of an LLC purchase, the membership units. However, assets such as equipment and inventory are still owned by the entity. If you acquire a business through a stock purchase, you will most likely assume all of that company’s liabilities.

In an asset purchase agreement, you purchase the business’s assets, and the seller retains ownership of the actual business. In most asset purchases, the assets are transferred to the new owner without liabilities, but there can be exceptions. Most people buying an existing business choose to undergo an asset purchase transaction to avoid assuming debts accumulated by the previous owner. A qualified attorney can help you decide what type of business purchase agreement is right for you.

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