Q: What are the consequences/legality of purchasing a restaurant business if one of the 3 owners is in probate?
We're a week out from completing our due diligence period for purchasing a restaurant and it was just disclosed to us the deceased owner's name is still on the company and though they had a will it could place their share of the restaurant in probate.
A: The deceased owner's estate needs to be probated in order to transfer ownership of that share of the business to the deceased owner's heir(s). However, there is much more to it than that. There might be a buy-sell agreement in place or other mechanisms for dealing with the death of an owner. Ultimately, it is the seller's responsibility to get their ducks in a row to sell the business, and it is up to your attorney to advise you whether what they have taken the proper steps to ensure a valid transfer.
If you have not already hired an attorney to assist you with this transaction, do it now. It might not be too late. The purchase of a business is a complicated transaction. A few dollars spent today can save a ton of money and heartache later.
A: There must be an order obtained from the probate court of the deceased owner's estate approving the sale. This will take time since will or not beneficiaries need to be notified of the sale and a hearing scheduled approving the sale. This could considerably delay your ability to close on the sale even if an estate is already opened, just having a will saying the remaining owners get the deceased owner's share is not sufficient. Additionally there may be a shareholder's agreement if the current owners are a corporation, or a managment agreement if the current owners are an LLC, or a partnership agreement, if the current owners are a partnership, which may also affect the ownership of the deceased owners share.
You will definitely need an attorney and should have one from day one in any buy sell transaction, particularly if a commercial transaction since they are very complex. In addition to the business ownership, utilities, names of business, occupational licenses have to be transferred, and tax implications particularly if you are acquiring the entity owing the business, definitely not a DIY activity.
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