Buy a business

Buy a business

Lease Assignment: I want to buy business but the assignment is not approved by the landlord. The seller suggest the the other solution that is selling voting trust and I will be a trustee. What is advantage and disadvantage for me?


It sounds like you've cut the deal to buy the business and the only hold up is that the landlord won't approve the assignment of the lease to you as part of the deal. There are a number of possibilities to consider. Although you may have already addressed them, let's list them for other visitors to see as well:

  • New Location: Buy the business assets and move to a new location so that the landlord's refusal doesn't affect you. This might leave the seller holding the lease obligation which may also be unacceptable to the seller. However, if the seller is an entity (e.g. a corporation) and there are no personal guarantees, or the remaining lease term is short, that issue might be dealt with. If a key value of the business is the goodwill associated with the location, this approach might no be feasible regardless of the legalities.
  • Sub-Let: Legally, a sublet is different than an assignment of the lease in that there is a reversion to the sublessor (the person selling you the business). If the seller becomes a sublessor to you, the seller remains liable on the lease. This might entice the landlord to approve the deal (the landlord could have both you and the seller guaranteeing the payment of the rent).
  • Pay: Hey, maybe the landlord is just negotiating. Offer a payment to approve the transfer of the lease, a higher rent or some other enticement.
  • Guarantees: Instead of a sublease, maybe the seller would be willing to guarantee a portion of the rent after you take over, or perhaps you have a family member that can do that. You might also be able to give the landlord collateral to secure future lease payments.
  • Read the Lease Carefully: Leases are far from standard forms. Go over the lease with a sharp real estate attorney and find if there is a way you can cut the deal. It might be possible to sell the stock instead of the assets and if the lease doesn't have a due on transfer or a change in control clause then you'll be able to complete the deal. This seems to be what the seller is suggesting to you (but see below). For the stock in the business to be held by a trust (which it probably isn't now) will likely require a transfer from the seller to the trust. That might trigger a cancellation or other mechanism in the lease. Maybe not.
  • Seller is Playing: Consider the possibility that the seller is playing games for other reasons. Have you or your attorney (don't engage in this type of transaction without a lawyer) spoken directly to landlord's attorney? You should. Maybe there really is no issue, or the issue is something that can be negotiated or otherwise resolved.

Now for the structure of the deal. You didn't say how the business is organized. Let's assume it is a corporation. Are you really buying stock? Why? Are you really comfortable with the risks of the liabilities of the predecessor/seller that you'll be assuming if you buy the entity instead of assets? See above concerning stock sales and the lease. If you really are comfortable buying stock what difference is there between buying stock or having a voting trust buy the stock (there has to be a sale to get the seller the money) and you being a trustee? While anything is possible it would seem that a direct stock sale would not be less of an issue then having a voting trust involved.

A voting trust is a trust (a contractual arrangement) which typically (but it all depends on how its structured and what the terms are) owns only nominal control of the stock and designates a person to vote. In some voting trust arrangements someone other than than trust owns actual legal or beneficial interests in the stock.

It is not clear how the voting trust arrangement will solve the lease problem. It is not clear that all options to address the assignment of the lease have been dealt with. It is not clear what rights you will have under the voting trust and how you will be protected. There are issues with the structure of the deal as an apparent equity (stock, LLC membership interests, etc.) sale. You really need to consult with an attorney in your state that has business and real estate expertise. Also, don't cut out your accountant. Be sure he or she has reviewed all the numbers and the tax implications of any proposed transaction before you sign.

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