Smooth transition of contracts with asset purchase (buying the name)

searcher profile

November 03, 2024

by a searcher from Carnegie Mellon University in Boulder, CO, USA

We're asking our lawyers, but wanted to poll this community as well. Sorry for anonymous post, it's for a good reason.

We're based in Colorado and are purchasing a business in New York that operates entirely within that state. It's an asset purchase—we won't own the old LLC or its EIN—but we are acquiring the business name. All contracts are assignable, but transitioning them to our new entity/EIN will take several months. We want to minimize disruption for clients; ideally, they could continue paying the same company name, and we would gradually approach them to update the EIN.

To accommodate this, we've agreed with the current owners to continue operating as a pass-through to receive payments on our behalf, paying us as a 'management fee' equivalent to the revenue. The sellers are cooperative and supportive of whatever path best serves the customers.

We're trying to determine the best sequence for the name change process. Eventually, we want to operate under the original business name.

One option is for the current LLC to immediately change its name at closing to a placeholder name, doing business as (DBA) the original name. We would then set up a new entity under the original name as soon as it's available. This depends on New York allowing one company to DBA as another company with an agreement between them.

Another option is to leverage the fact that we're based in Colorado, where the original business name is available. We could form the company in Colorado, avoiding any duplicate names, just different states/EINs. The complexity here is that all business revenue occurs in New York, requiring us to register as a foreign entity there.

There may be other options as well. We're seeking creative solutions to ensure a smooth transition with minimal client disruption. What would you recommend?

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
In an Asset purchase you buy the name (X). Seller EIN changes the name to Y. Your EIN assumes the name X. This works in most deals. Problem arises if customers are wiring payments to seller's bank account. This requires working with the bank and the seller. Changing EIN associated with the seller's account does not usually work. However, you may be able to add your name to the account. Another option is to hold some amount in escrow to protect against seller not transferring the funds that went to his/her account.
commentor profile
Reply by a searcher
from University of Texas in Boulder, CO, USA
Definitely taking a risk in trusting seller to transfer the funds!
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