Buying a business in any state entails quite a bit of legal, financial and tax analysis. Will you be buying the stock of the company (membership interest if an LLC) or the assets of the company? Will your company be organized as a corporation, an LLC, or some other type of business entity? What taxes and local licenses will be needed? There are many other issues to sort through, but in Michigan, there are a few issues which are rather unique to purchasing a business within the state. These local nuances are why an attorney with a great deal of familiarity with Michigan based transactions is a must.
One important wrinkle to Michigan business acquisitions is the concept of successor tax liability. It is not surprising that the purchaser of a corporation’s stock will have to deal with the liabilities of that company, but under Michigan law, tax liabilities of the purchased company can potentially become liens against purchased assets in an asset acquisition, as well. Care needs to be taken to protect the buyer from this potential pitfall.
Another matter to keep in mind, whether buying stock or assets of the business, is that you may be inheriting an unemployment tax rate from the seller. Michigan unemployment taxes are not calculated based on the same tax rate for every business. The tax rate is called an “experience” rate, which takes into consideration various things, most notably the level of unemployment claims made by former employees of the business. It is important for the purchaser of a business to understand whether the unemployment experience rate of the seller will carryover to the purchaser, or if there will be a fresh start, with a new experience rate. Michigan law requires the seller of a business, in many instances, to disclose certain information regarding unemployment matters to a potential buyer so that an inherited experience rate does not come as a surprise.
(see Form 1027 at http://www.michigan.gov/documents/uia_UC1027_76086_7.pdf )
Due diligence is the key to all of this. It is important to have experienced legal and financial advisors who know what information to look for, and what warranties and covenants to ask for in the transaction documents. If you are contemplating the purchase or sale of a Michigan business, Penzien & McBride, PLLC can provide you with the experience of a legal advisor with years of experience dealing with these issues.
If you would like to talk to a Penzien & McBride attorney about the purchase or sale of a business, or other Michigan business matters, please contact us at (586) 690-4400 or visit our contact page.
Serving Michigan businesses primarily in Macomb, St. Clair and Oakland Counties, near Detroit.