| Nov. 18 2008 at 3:29 PM |
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So here's the deal. Essentially I am attempting to take over an existing business that is currently failing, thus allowing me to get it for an obscenely low price. It is currently an internet cafe with an amazing amount of growth potential and is located in a town where there is nothing like it around. Basically, the people that own it now have limited experience in running a food service establishment and have decided they want out. What they want to do is essentially turn over ownership of the company to me. Here's where my first question lies. If they maintain titled ownership, what are the IRS ramifications. Such as I may not change the name, they will pay sales taxes from an account I have to make weekly deposits into. Other than that, everything falls under my name. My responsibilities to them is to pay the $800/mo rent and cover all day to day expenses as well as 10% of sales weekly. Would I still be considered the owner for taxes? Would it be a sole proprietorship? With an answer to this I will be able to figure more out. Thanks in advance for the responses.
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| Nov. 18 2008 at 4:38 PM |
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This sounds like a full partnership to me and unless that is what you want and/are agreeing upon, they may have a 55% ownership or more which may allow them to make all the important biz decisions. I would suggest that you talk to an attorney before you proceed.
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| Nov. 19 2008 at 10:59 AM |
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The scenario you outlined can actually represent anything from a partnership, franchise, or operating agreement, but it does not necessarily evidence an ownership interest in the business.
What startles me is the fact that you say on one hand that “they want to turn over ownership of the company to me” but then relegate this fact by stating that “they maintain titled ownership”.
Although I can’t be certain what this means, I am assuming that the original owner doesn’t want to give up ownership of the company until you have held up your end of the bargain and paid the purchase price. This is not how it’s done!
A stock purchase agreement can certainly include a default clause under which the original owner of the company can reassume ownership, let’s say, after you defaulted on 2-5 agreed upon payments or other material aspects of the purchase agreement. But in order to transfer ownership of the company, the original owner must actually transfer either (i) the majority or (ii) a minority equity interest in the company over to you.
Putting any accounts in your name will mean nothing, but putting your good name on the line for a business that isn’t yours! Also, the IRS doesn’t care about these immaterial facts. They strictly go by ownership interests that is either evidenced through shares or membership interests in which case the owner will be taxed directly.
Also, keep in mind that if you acquire a company, you will acquire virtually everything including potential debts, tax liabilities, and business history. You can eliminate a lot of these unknowns by just negotiating an asset purchase agreement.
Frankly, it sounds like you guys haven’t really figured what to do and how to do it. I would recommend that you get in touch with an adviser who can navigate you through this process.
In the event you’re interested, you can PM me to discuss this in greater detail.
Finally, keep in mind that high-speed Internet access is becoming a staple in more and more American households everyday. May be there’s a reason why this business is in trouble.
I hope this helps.
Mark
Nothing is as powerful as an idea whose time has come.
http://www.FastVentures.com
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| Nov. 19 2008 at 11:40 AM |
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MrFester wrote: So here's the deal. Essentially I am attempting to take over an existing business that is currently failing, thus allowing me to get it for an obscenely low price. It is currently an Internet cafe with an amazing amount of growth potential and is located in a town where there is nothing like it around. Basically, the people that own it now have limited experience in running a food service establishment and have decided they want out. What they want to do is essentially turn over ownership of the company to me. Here's where my first question lies. If they maintain titled ownership, what are the IRS ramifications. Such as I may not change the name, they will pay sales taxes from an account I have to make weekly deposits into. Other than that, everything falls under my name. My responsibilities to them is to pay the $800/mo rent and cover all day to day expenses as well as 10% of sales weekly. Would I still be considered the owner for taxes? Would it be a sole proprietorship? With an answer to this I will be able to figure more out. Thanks in advance for the responses.
I agree with Mark - an asset purchase would be in your best interest or you should get indemnity from the owners.
I guess they want to maintain "titled ownership" so they can be sure you pay them (there are better ways to accomplish this) - but I'm not clear why you would want that?
As to structure (sole proprietor)- it would continue to be what ever it is now. However, I would strongly suggest a different approach that includes setting up a separate business entity.
Send me a PM if you want to discuss the specifics of your situation.
Edited by: robertj - Nov. 19 2008 at 11:40 AMBusiness Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com
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