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Do I need to pay all vendor debt prior to the sale of my business?

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Answers (3)
Fayaz Karim, MBA, CA
Subway Valuations, Business Searches
Orange County, CA

It is best to sell a business "free and clear" of debts, unless buyer agrees to take over debts as part of the purchase price. It can get complicated and ugly sometimes, esp if there are vendor credits, merchandise returns and so on. Buyer will not like dealing with those issues.........

Fayaz Karim, MBA, CA

Apr 3, 2009
Kathryne Pusch
ConsultKAP Inc./Business Brokers Network

Alyssa-- Debt will either be assumed or cleared at closing. Some debt MAY be assumed by a buyer, with the permission of the creditor, but this does not always relieve you of a secondary liability to the creditor-- you signed a contract stating you would pay, after all. So, they may be entitled to keep you " on the hook." To simplify such issues in a small business sale, typically a seller clears all his liabilities and the buyer specifically does not assume any debts or liabilities. This is generally accomplished through what is called an "asset sale." This does NOT mean they just buy your equipment-- they also buy intangibles like the business name, customer and vendor lists, etc. Be sure to retain appropriate experts to assure your transaction results in the positive outcome you desire. Best of luck with your project, KAP

Apr 2, 2009
Ari Casper
Petro Business Services, Inc

Whether or not you have to pay the debt is a matter of contract, but disclosing the debt is absolutely required. Failure to do so constitutes fraud.

Mar 31, 2009