~Need some advice..Business gone bad

[copperarab]

I have been chatting with my sister who is in SC...I gave her this site and she has been reading. I don't know ALL of the specifics nor the amounts, but maybe you guys can give me something to give to her.

In a nutshell: Sisters hubby starts a concrete business in South Carolina...has it for many years. Brings in the family (brothers) and things get messy. Eventually my sister and hubby VERBALLY hand over the company to the brothers and move out of state. Three years later (after a move back to South Carolina) the sister and husband find out that many of the bills for concrete AND taxes were still in their name though they incurred after the verbal transfer of company. The brothers of the transferred and legally (by attorney) NEWly named company deny the bills are theirs, tho there is some proof due to paperwork orders/dates/etc. My sister has spoken to an attorney who referred her to a special attorney in these matters and now the IRS is involved because of unpaid taxes from years ago.

She is pulling her hair out. It has basically become family's word against family's word.

The amount we are talking about is around the $100,000 range from what I know. I believe ALL of the bills were made between the verbal handing over and the legal name change..a GREY AREA so to speak.

What does she need to do? There are some proof papers, but the brothers do not want to hand them over. All she has at this time is orders of concrete that was made after the verbal business transfer. She knows that she/hubby are not liable, but at the same time, these orders were in her husbands original business name.

I know it doesnt give you guys much to go on...but it is all I know right now.....Maybe she will post for help after she sees this.

Anything I can tell her would be great!!

THANKS!!!!!!!!!!!!!!!!!!

[codename_fortyseven]

Seems to me that if two people are going to be held liable for the debts of another business, that they would have some sort of interest/lien remaining in the business, no? If the business is solvent, you could pay the bills and go after the assets.

[Methuss]

Sole Prorietorship, Partnership, or Incorporated Business? This makes a huge difference. Also, was the original business dissolved or simply renamed? This also makes a difference in the context of the first question.

If sole proprietorship:

1. He is liable for the debt unless he has proof of sale of the business.

1a. With proof of sale, the new owner assumes all the business liability that existed when he took possession of it.

2. Business debt is not covered under the FDCPA.

If a partnership:

1. His is liable for a percentage of the debt equal to his stake in the business unless he can show documentation that the partnership was dissolved.

2. Business debt is not covered under the FDCPA here either.

If an incorporated business:

1. He is not liable for a single penny unless he signed an agreement to be personally liable for the debt. The business is a sole entity like a person born and dying.

2. If the business is renamed, it is just like a person getting a name change. The business is still liable except as provided in #1.

3. If the business is dissolved, the debt dies...just like a person dying except as provided in #1.

[copperarab]

Oh geesh thanks..some of what you two posted is above and beyond my head.

I just spoke to my sister on the phone whereas ONE of the two brothers is admitting to the debt.

My sister also informed me that there is a "sale' of business receipt that the brothers have but wont furnish at this time.

I told her on the phone of this posting. SHe said she would gladly come on later tonite and pick up where I have left off.

Please help her in anyway you can. THey have 4 children and are a very responsible family as a norm.

I hope that she will be able to answer the questions bettter than I can.

Thanks!!!

[cashae]

Hey guys, im the one with the problem.

ok. the business was incorprated, we verbally gave them the business in oct. 2000. they took over the books, etc. legally the paper work wasn't completed till 2001, not sure of the month, still trying to get the contract. during the time from the verbal agreement to the legal, everything was still being ran through our accounts, we were thinking untill jan, but found out two weeks ago, it was untill april. my husband thinks that the contract was written that the new company wouldn't be responsible for any of the old companys debt, on a verbal agreement that they would pay any debts left. well, they payed a little bit, but never the whole thing, and now say there our debts, because there in our name.

I met with a lawyer, he told me to file bk and if the company was worth more then what it was bought for, then the irs would get there money from them, i didnt trust that lawyer, so i went to another one, he told me not to file, because were not bad off, its just the big tax bill, so, he has referred me to a tax lawyer. if anyone has any info, i would appreciate it.

[KentWA]

Went through a simular issue in the past. If the company was incorporated you have no personal liability unless you did things like co-mingling of funds etc. Co-mingling of your personal fund with business funds (i.e. paying business accounts from your personal checking account) could rise to piercing the corporate vail. Your only tax liablity would be to profits made from the transfer of the company, whether they were cash or goods in kind (i.e. getting a house in exchange for the business).

[Methuss]

Not to mention the fact that when a business is sold, the outstanding debt becomes the liability of the new owner.

[copperarab]

Thanks guys for your replies to this situation. My sister (cashae) posted above that the contract did not spell out that they (brothers) were to take over any debt (taxes)..it was verbally agreed upon..Family you know.

There appears to have been a 6 month span of the brothers changing over the company LEGALLY, whereas the prior years taxes and any new concrete/supplies were handled under the original owners (company) name during that 6 month period. They said they ( new owners) would take care of all bills and taxes during that time..they didnt.

HOW does my brother-in-law and sister prove the original verbal agreement?

AND if they were to bankrupt the company, would it affect them personally as their names are on it?

Thank You again

[KentWA]

If exclusion of the debt was not in a written contract, the new owners get it by default. They are purchasing the company, its entire entity. The debts belong to the corp just like it was a person and liability does not flow to the holders of that company unless actions are taken that can pierce the corprate vail. BK is the same way.

Good friends of ours ran a company that defaulted on a lease. The propety holder got a judgement againest the company and then went and garnished their personal accounts. Right now I am looking out the window at the nice addition to their house that guy is paying for due to illegally garnishing personal accounts for company debts.

[copperarab]

Thank you KentWA!!!

My sister is going to pull her hubby's credit reports to see what are on them. She also told me that there were a truck or two, in their name, that went with the sold company. The brothers slid on those truck payments for several months.

HOW does one prove/remove these bad debts from the OC and CRA'S? Is it the same route as a regular collection? Would they have to get their hands on the contract and send copies to the OC? How do they get their names off those 6 months worth of debt?

Yeah, yeah, yeah...I am STILL blond

[Chancy949]

Copper,

If you want, I can have you talk to my old Business Partner. This is what she did. Sales of Business etc. She's here in Tulsa. I just did the Marketing and research stuff.

We can make sure she gets the right attorney. My Partner used to be a BBB Arbitrator too. She can neg. with the IRS as well.

Let me know

[Methuss]

HOW does one prove/remove these bad debts from the OC and CRA'S? Is it the same route as a regular collection?

Business debt is not covered by the FDCPA. Essentially, collectors can harrass you until the sun explodes and there is little in the way of laws to curtail them. The FCRA is your only real tool here since it limits false reporting or reporting of anything they have reason to believe is inaccurate.

Because it was in incorporated business, all this debt should have been under the company's EIN number, not the SSN of the operators. The only exception is if he signed an agreement to be "personally liable" for the business' debts...in which case, they are screwed. Accepting personal liability for business debt is always a bad deal because it's like co-signing. If the business fials to pay, you become responsible for it.

I suggest sending FCRA disputes to each listed company on the credit report. Deny personal liability for the debt and demand copies of the applications/contracts.