Question by null 0: Can a business escape debt by dissolving and reforming with a new name?
Can an incorporated business escape debt by dissolving, reforming under a new name, rehiring all of the exact same employees, and contacting the database of clients from the old company name and informing them of the name change, new contact info, etc? Would this result in debt under the original business name completely gone? Can people make claims against the new company for debt of the old one if it has the same owners?
This does not relate to me personally, I think it’s a shitty thing to do if its possible, just asking out of curiosity.
Best answer:
Answer by Bud Johnson
I hate to say it, but small businesses have been known to use this tactic. There are some hang-ups with the plan though. If you hose vendors that you have been doing business with then you will have to find new vendors, because these vendors will obviously not do business with you anymore. Payroll liabilities will be tracked back to the responsible party at the company these liabilities are inescapable. If your business has some how got loans from banks without a personal guarantee then you will need to file a business bankruptcy and even then the bank can claim the bankruptcy is fraudulent. However, most small business loans require a personal guarantee which means if you default your personal credit is at risk. Even in small business in a big city word will get around that the owner has hosed a bunch of people and revenue will be affected.
The main time this solution works effectively is if a small corporation gets sued and they lose the lawsuit and have a big judgment against them. In order to avoid paying the judgment the owner will shut the business down and change the name slightly with the Department of State and re-incorporate.
Big business really can’t get away with this tactic as the reputation of the business will be harmed and everyone will find out about it.
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