Purchasing a Business - Successor Liability

As a purchaser of even a portion of a business such as stock of goods or the transfer of a liquor license, you may be held responsible for the previous owner's liabilities, regardless of any contractual language to the contrary. This is known as Successor Liability. To protect yourself and the business from hidden liabilities, it is important that you thoroughly research the business you are purchasing.

As a successor or purchaser of a business, you must withhold sufficient money to cover any business tax debts incurred by the previous owner. These funds should be placed in an escrow account and may be released when the previous owner produces a Tax Clearance Certificate from the Michigan Department of Treasury stating that no taxes are due. Only the seller can request this information from the Department of Treasury.

For unemployment tax purposes, successors may also be held liable for tax debts incurred by the previous owner. By law, the seller must provide the buyer with certain unemployment insurance information at least two days before an offer to purchase is accepted. For more information about unemployment tax debts, visit the Unemployment Insurance Agency website at www.michigan.gov/uia .