Q: Who pays taxes for the current fiscal year during a small business aquisition?
Someone I met is closing down their business and has a fair number of assets. If I were to form a company to acquire their business, would I be subject to paying their taxes and other debts? This would be a California formed Corporation absorbing a Texas Corporation.
A:
If the terms of the purchase and sale are drafted by an attorney who knows their business, the only thing you will be obligated to pay for are the assets you buy and any debts you agree to assume. If you in fact are going to buy substantially all of the assets of the business then you need to make sure you are properly protected so that both creditors and government agencies do not have a claim against you.
So you need to know what the debts and taxes that are currently owed by the business you are buying, you need to run a UCC check on the business as well as a tax lien check. For state taxes you get a lien waiver for the sale. Depending upon the number of current employees, if any, you need to determine if there is a law the impacts the closing of the business and the transfer of its assets based on the number of employees being laid off. If you intend to do this, hire an attorney who does acquisitions.
A: You will be responsible for any profits earned subsequent to assets acquisition. Consult a tax attorney for allocation of the cost to various asset categories. The information presented herein is for general purposes only. It is not intended for, and may not be construed as legal, tax, or accounting advice, or business solicitation. For specific advice, please consult a tax attorney in person. Good luck. Zaher Fallahi, Business and Tax Attorney, CPA (California).
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