If someone sells a business and they have open contracts with clients, is the new owner responsible if money has been paid to previous owner?

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If someone sells a business and they have open contracts with clients, is the new owner responsible if money has been paid to previous owner?

If a business is sold and the name has changed but the previous owner has contracts that have been paid on are the new owners responsible?

Asked on June 19, 2012 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

It depends on how the business was sold:

1) The business was a corporation or limited liability company (LLC) and the new owner bought the actual corporation or LLC--then the business is still liable, since it is still the same business entity or structure, albeit with a new owner. (The new owner is not personally liable, but the company remains liable, since it's still the same legal entity.)

2) The business was not a corporation or LLC, or it was, but the new owner didn't buy the corporaton or LLC--he or she only bought the assets (e.g. good will, name, intellectual property, customer list, inventory, equipment, etc.); in this case, the new owner would be liable only to the degree he assumed (took over) the contracts. Assuming contracts does not happen automatically; the new owner would have had to agree to assume the contracts, such as part of the sale. (Of course, if he or she did not assume the contracts, he or she also cannot enforce them against the other parties, if, for example, they still owed the business something--contractual rights and obligations are a two-way street.)


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