Legal Question in Business Law in Texas
A friend's mother (and owner of a business) has recently been diagnosed and wants to pass ownership of the company on. Unfortunately, the company is behind on payments to both creditors and the IRS. The friend wants to create a "shell company" (his words) that will absorb the assets while leaving behind the debts in the old company's name. His reasoning is the debt will die with the owner of the old company (his mom). I think this is a terrible idea, but I can't quote the chapter and verse on why. Is this legal in any way shape or form?
2 Answers from Attorneys
It's called a fraudulent transfer and may result in both civil and criminal liability.
If she sells assets with liens on them, or for the purpose of avoiding creditors, then it's fraud. However, if she sells the assets and uses the funds to pay creditors (specifically taxes and secured creditors) then she might be okay.
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