If I’m purchasing business, am I liable in anyway for the previous owner?

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If I’m purchasing business, am I liable in anyway for the previous owner?

I’m buying just the assets of the business equipment and will be changing the name to better reflect myself. Is there anything special I should have written up and signed?

Asked on September 3, 2015 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

If you're only buying the assets, then you should only be liable in relation to those assets themselves--that is, if someone else has a valid legal claim to those assets, such as if they were purchased with financing, and the lender/financing company has a lien on them. While legally, you should not be liable for other claims e.g. breach of contract tort if somene was injured by the company or on its property, that may not, however, stop someone who thinks you are liable from naming you in a lawsuit and forcing you to defend. Therefore, you should include the following in a contract
1 A written representation by the seller that to the best of his knowledge, there are no liens, no claims, and no pending litigation against the business or the assets...then, if it turns out he lied about that, you could sue him for breach of contract.
2 An indeminification clause, stating that if there are any lawsuits or liens asserted against you or any asset you purchased, arising out of conduct or actions occuring before you purchased the assets, that the seller will indemnify you for the cost of defending yourself e.g. legal fees and/or for any judgments against you. 
Any lawyer with experience in drafting contracts can draft the purchase agreement for you and add these terms.
 


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