If I take over my brother’s automotive business and form an LLC, would I be responsible for my his debts?

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If I take over my brother’s automotive business and form an LLC, would I be responsible for my his debts?

I want to borrow some money from a investor and would give him a small percentage of said business (1-3%) depending on how much he invests. Would I piggy back on his business license or do I apply for a new business license? Could you please give me a run down on all the necessary procedures that I would have to complete?

Asked on June 4, 2015 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

If you want to avoid your brother's debts, do NOT buy his business itself (i.e. the LLC or corporation, if he has one), do NOT take over any licenses of his, and do NOT assume any of his obligations or contracts. Rather, form your new LLC (with whatever owners, investors, etc. you want) and have the LLC purchase the *assets*, and only the assets--e.g. the name, the customer list, the inventory, the equipment, etc.-- of his business. The one exception to not assuming his obligation is that if he leases or rents his shop/space, you may wish to assume his lease, assuming that he does not owe any back rent which you'd become responsible for. By having a new LLC and only taking over the assets and nothing else, you should avoid liability for his debts. Any lawyers who handles contracts or business formation should be able to help you.


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