How to shield myself and investors from sellers misdoings

Member resources:

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a searcher
in Denver, CO, USA

2yrs ago

How to shield myself and investors from sellers misdoings

How best to protect yourself and investors in a transaction where the previous owner may have:

1) Taken cash (did not disclose to the IRS) - avoided corporate taxes
2) Paid employees cash off the books - avoided payroll tax

Current thinking, Asset Purchase, we would immediately pay all taxes moving forward, and create a claw back for liabilities within statute of limitation (e.g. 5-7 years for payroll taxes) that the business incurs as a result of the previous owners - I believe we can still be on the hook for sales tax and payroll tax.

Any other creative ideas here/other watchouts?

0 Likes

310 Views

reply by an intermediary 2yrs ago
from The University of Chicago in Chicago, IL, USA

I such situation,
1) What profits you use for price/structure is your call,
2) Bank will look at TR
3) For most such sellers, financial statements do not reflect such revenue and expense. Accountant will not prepare if he/she knew such statements exist.
4) There are successor liabilities in an Asset purchase, Consult an attorney. Few I know are a) unpaid payroll taxes and wages, b) environmental, c) existing lawsuits, etc.
5) I have not heard of liabilities to the buyer associated with unreported revenue and wages in normal transactions. except one. A buyer bought the business in NJ. After the Asset sale, Seller's son who worked in father's business as an accountant went to IRS and disclosed unreported cash transactions. Seller, the father, got into trouble. I do not know the details after that except that the buyer had to cooperate.
6) Almost ALL businesses have some kind of accounting issue that can be challenged if IRS looked at it. This is true for both audited and unaudited statements.

reply by a searcher 2yrs ago
from Yale University in Calgary, AB, Canada

Asset purchase is best.

If the seller is has engaged in misdoings, it might be worth considering not doing the transaction at all. What you know about could just be the tip of the iceberg.