Legal Question in Business Law in Illinois

Debt disclosure and selling a small business

I sold my small business approximately 6 months ago. During the negotiations for the sale of the business, I told the buyer that the business had a few minor debts, but because they were intermingled with some personal debts, I didn't want to disclose all of them. I told the buyer that all of the business debts were going to be paid with the money received from the sale, which is what happened.

Now, 6 months later, the business is not doing as well, and the buyer is threatening suit due to my failure to disclose the debts in the financial statements. In my opinion, the debts didn't affect the profitability of the company, they were orally disclosed during negotiations, and they were paid off immediately after the sale.

Does she have a case for fraud? How hard is it going to be for her to show damages when the debts were never transferred to her, and were paid off immediately after the sale? Are there any other issues that I should be concerned with?

Thank you in advance for you help.


Asked on 12/03/07, 7:08 pm

1 Answer from Attorneys
David K. Staub Staub Anderson LLC

Re: Debt disclosure and selling a small business

From the facts you stated, it seems unlikely that the buyer could show fraud, but the buyer's story may sound very different than yours. Normally the "few minor debts" only show up directly on the balance sheet but if the business is correctly doing double entry bookkeeping, the debts also show up indirectly in the income statement. Was income overstated by omitting the expenses related to debts?

If you used an attorney in connection with your sale, you should talk to him or her immediately. If you did not have an attorney, you should hire one who can advise you on dealing with the issue. You may make missteps that can cost you dearly if the buyer does sue.

David K. Staub, an Illinois business attorney

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Answered on 12/04/07, 10:29 am


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