I am thinking of purchasing 49% of an already established corporation. Will I be responsible for any unpaid debts that were made before I purchased the shares?
You will not be held personally responsible for a corporation’s debts. A corporation is considered a separate legal person from its shareholders. Hence, the debts of the corporation cannot be charged to the corporation’s individual shareholders.
However, your investment in the corporation – the cash or property that you transfer to the corporation as payment for the 49% share – may be used to pay the debt.
Before you invest in any corporation, it’s important to understand the specifics of the corporation’s debt and its overall financial and legal condition.
The corporation’s board has the power to decide how or where to allocate the corporation’s assets, which will include whatever amount you will pay to the corporation. There are various ways to mitigate this risk. For example, your investment agreement can include guaranteed board seats for yourself and possibly other nominees.
In general, before you invest in any corporation, it’s important to understand the specifics of the corporation’s debt and its overall financial and legal condition. This is where getting expert professional help can be invaluable. The money that you spend on advisors now can save you massive amounts later on, by helping you avoid liability or undue risk.