AboutRonald J. Cappuccio, J.D., LL.M.(Tax) Expertise I have extensive experience in negotiating emerging business contracts and agreements, joint ventures, limited laibility company buy-sell agreements and buying and selling businesses. My approach is from a legal, tax and business prospective gearing my negotiations to practical solutions rather than merely drafting impractical documents
Experience I have have been an attorney since 1976 emphasizing business and tax law issues. I am an adjunct law professor in negotiation and alternative dispute resolution.
Organizations American Bar Associtiation
New Jersey State Bar Association
Camden County Bar Association
Question I am in the process of selling a small business. The business is profitable, but it also has a small amount of business debt. This business debt unfortunately is co-mingled with some personal debt. The overall amount of this debt is well below the value of the business, and I will pay off all of the debt with the money received from selling the business.
If this debt is co-mingled with personal debt, do I have to disclose the debt during negotiations, or is it sufficient if I tell the buyer that the business does have a minor amount of debt related to start-up expenses and that I will pay the debt off in full with the money from the sale? It seems to me that it should be treated like an existing mortage when a homeowner is in the process of selling a home. The amount of debt shouldn't matter, and doesn't affect the value of the home (or business), as long as you are not passing on the debt to the buyer, correct? Any help or guidance would be greatly appreciated.
Answer Benson:
Thank you for the question. The answer is simple - "honesty is the best policy." Any buyer that is represented by experienced counsel would discover the obligations during the "due diligence" phase of investigating the business. Frankly, the debt may be a positive factor because the bank payments can be factored out by the buyer when determining the return.
