More >>

More >>

More >>

More >>

More >>

More >>

More >>

More >>

When Selling A Business, Neither A Borrower Nor A Lender Be... By Cliff Ennico www.creators.com "Last year, we sold our small-sized, family business corporation to two individuals. The deal was that they both pay us half of the purchase price for the business and get equally 50% ownership. While the first person paid his share all in cash, the second person chose to pay his share in 10 monthly installments. The year passed by and he (the second person) did not pay a penny. Now, the new owners aren't talking to each other - they can't agree on even basic business transactions. Unfortunately, the first person can't get out because he personally guaranteed the retail lease for the business. The second person has a poor credit score, due to a prior bankruptcy, so the second person can't put the lease in his own name. It feels like we are stuck. What are the available options to solve these disputes?" Let's take this one step at a time. First, if I understand your e-mail correctly, you sold your business to the two individuals, not to a corporation or a limited liability company (LLC). This means that they purchased the business as a partnership, which means that they have "joint and several liability" for the purchase price and all other partnership debts. In plain English, each partner is liable for the whole purchase price (not just the amount he paid you at the closing), and you can pursue either or both of them if payment is not made. Clearly, the second person is at fault for not paying his share of the purchase price. But you have every legal right to collect the entire balance of the purchase price due from the first person, or from both partners, unless you promised the first person in writing you wouldn't do that. The first person can then bring a legal action against his partner seeking reimbursement for his share of the purchase price - lawyers call that a "contribution and indemnity suit". Given the second person's poor financial condition, the suit probably won't be successful, but as the teenagers say nowadays, "that is SOOOOOO not your problem!" Why did you wait for the second person to miss all 10 of his installment payments before bringing the subject up with him and his partner? If I were in your shoes, I would have been yelling at the top of my lungs and demanding payment the minute the first installment date was missed. It appears to me that you have become a little too friendly with the first person: you have been listening with a little too much sympathy to his "tale of woe", and are reluctant to hold him accountable for his partner's default. Nevertheless, you sold your business in good faith and have every right to collect the full purchase price due to you. What happens between the two partners has nothing to do with the debt owed you, and you have a duty to yourself and your family to collect that debt from whoever has a pocket deep enough to pay. Assuming that neither partner has the resources to pay you at this point, you have to look at the possibility of taking control of the business back from them. Hopefully, when you sold the business, you insisted that the partners put up some collateral - their stock in the corporation or the assets of the business - for the second person's loan. If the loan transaction was properly drafted, you can "foreclose" on that collateral, take back the business, and satisfy your debt out of the business' future income. Of course, this will mean you will have to reassume the lease of the retail space where the business is being conducted. If the two partners owe any back rent or other amounts to the landlord, you probably will have to pay these current in order to stay at that location. You also need to look at the paperwork you and the two partners signed at the closing - if they "subleased" the retail space from you for the duration of the lease term, you may still be on the hook as a "guarantor" of their lease obligations until the lease expires - that's the way the law works in most states. My strong suspicion is that this was a "handshake deal" with no lawyers on either side, and you probably are "stuck". Aren't you glad now you saved a few bucks in legal fees? Here are a few lessons from this experience: never sell or buy a business without competent legal help; whenever you agree to "loan" money to someone, get it in writing and be sure to take collateral in case there's a default; when assigning or transferring a lease, make sure the landlord releases you in writing from any future lease obligations; never buy a business as a partnership - form a corporation or LLC to act as the purchaser; and never go into business with someone who has a prior history of cheating his creditors. Cliff Ennico ( cennico@legalcareer.com )is a syndicated columnist, author and former host of the PBS televisionseries 'Money Hunt'. This column is no substitute for legal, tax orfinancial advice, which can be furnished only by a qualifiedprofessional licensed in your state. To find out more about CliffEnnico and other Creators Syndicate writers and cartoonists, visit ourWeb page at www.creators.com .COPYRIGHT 2009 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE,INC. Permission granted for use on DrLaura.com. More >>

Paved With GoodIntentions... By Cliff Ennico www.creators.com #147;For the past several years, I have been making doll clothes and teddybear outfits in my spare time and selling them on eBay, Amazon andother more specialized handicrafts sites such as etsy.com. I understandthere's a new law that would require me to have my productsprofessionally tested before I sell them to make sure there are noharmful chemicals or lead in them. While the law applies primarily tomass market 'manufacturers', such as Chinese toy companies, there seemsto be no exception for small businesses like mine. There's no way I cancomply with this law #150; is the Government trying to put me out ofbusiness?#148; Until Friday (January 30, 2009), the short answer to this reader'squestion was "yes". In August 2008, Congress passed the Consumer Product Safety ImprovementAct (CPSIA) which, among other things, prohibits the sale of certainitems intended for consumption by children 12 years of age or younger.Specifically, beginning February 10, 2009, children's products cannotbe sold if they contain more than 600 parts per million (ppm) of lead.Also, certain children's products manufactured on or after February 10,2009 cannot be sold if they contain more than 0.1% of certain specificphthalates (chemicals that are added to plastics to give them moreflexibility). CPSIA requires manufacturers of children's products to have them testedfor compliance with the law, and to certify in writing to distributorsand retailers that the CPSIA's requirements have been met. There's onlyone problem: the CPSIA did not define - and still has not defined --the term "manufacturer". Clearly, a toy factory in Asia qualifies. Butso does someone working out of their home making doll clothes fromleftover cloth. Now, I don't think anyone can argue with the basic premise of CPSIA -that keeping kids away from lead and harmful chemicals in toys, dollsand other kid stuff is a REALLY good idea. But the people who drafted CPSIA forgot one thing. One of the few lawsthat will never be repealed, amended or superseded is the "law ofunintended consequences." Perhaps the best expression of this law isthe old saying "the road to Hell is paved with good intentions",attributed to the medieval cleric Bernard of Clairvaux (1091-1153).Sometimes, when trying to do good for some people, legislators andlawmakers effect harm on other people. Most of the time, this isunintentional - laws and regulations are often passed quickly, underdeadline pressure and heat from the media, to respond to an immediateneed or public concern. But when it happens, it still hurts. Last month, the U.S. Consumer Product Safety Commission (CPSC), thefederal government agency responsible for implementing and enforcingCPSIA, began to get the idea that the "testing and certification"requirement wasn't going to work for a lot of people. It issued apolicy statement clarifying that "sellers of used children's products,such as thrift stores and consignment stores, are not required tocertify that those products meet the new lead limits, phthalatesstandard or new toy standards." Good news for people selling doll clothes and teddy bear outfits oneBay, but only if they didn't actually make the stuff themselves. Eventhen, there could be trouble. The CPSC added the following crypticwarning: "resellers cannot sell children's products that exceed thelead limit and therefore should avoid products that are likely to havelead content, unless they have testing or other information to indicatethe products being sold have less than the new limit. Those resellersthat do sell products in violation of the new limits could faceciviland/or criminal penalties." So, are resellers off the hook as long as they stay away from certaintoys -- such as metal soldiers -- that are likely to contain some lead,or must they educate themselves to recognize the CPSIA's bannedchemicals? How many questions must they ask their vendors orconsignors, who probably don't know the answers themselves? No answers,at least not yet. Even assuming resellers are off the hook, what about the homehandicrafters, who could still be considered "manufacturers" underCPSIA? Since Congress did not give any guidance when they passed thelaw, the CPSC did the only thing they could do under the circumstances: They deferred the "testing and certification" requirement for one year,until February 10, 2010, in order to "give the [CPSC] staff more timeto finalize four proposed rules which could relieve certain materialsand products from lead testing and to issue more guidance on whentesting is required and how it is to be conducted." Whew! So is it safe to start sewing teddy bear outfits again? Probably.But if you're making children's jewelry items, make sure there'sabsolutely no lead in them - that specific ban is not subject to theone-year stay. For more information on CPSIA, go to www.cpsc.gov/about/cpsia/cpsia.html .But don't expect answers, orclarity. Cliff Ennico ( cennico@legalcareer.com )is a syndicated columnist, author and former host of the PBS televisionseries 'Money Hunt'. This column is no substitute for legal, tax orfinancial advice, which can be furnished only by a qualifiedprofessional licensed in your state. To find out more about CliffEnnico and other Creators Syndicate writers and cartoonists, visit ourWeb page at www.creators.com .COPYRIGHT 2009 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE,INC. Permission granted for use on DrLaura.com. More >>