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  1. #1
    Join Date
    Dec 2000
    Posts
    53

    Question Changing business status and existing clients???

    I wonder, if I start a hosting business as a sole proprietorship and then eventually evolve into an LLC or a corporation, would that nullify the contracts that were established with my clients when I was a sole-proprietor.

    For example If i pick up some clients while Im not an LLC and then switch to LLC and at some point at time my original clients would want to sue me. Would I be liable with all my assets or only those of an LLC?

  2. #2
    Join Date
    Oct 2002
    Location
    Metro Detroit Area
    Posts
    9
    Great question! I don't know, I'm not a lawyer. I went the LLC route, it only cost me about 50 bucks and I'm the sole owner or "single member".

    Take care,

    Dan.

  3. #3
    Join Date
    Aug 2000
    Location
    NYC
    Posts
    6,627
    There are a few different ways to approach that. Probably the one I'd consider is this: form the new entity of whichever form you choose, and then sell the business, including any assets and existing contracts, to that new company.

    In practice it's basically what you're planning to do already, but my point is that you should formalize it. Don't just start serving your clients under a different name, but write up an agreement between yourself and your new company specifying what is being transferred -- and then you should notify the clients of the change as well.
    Specializing in SEO and PPC management.

  4. #4
    Consult with an attorney specializing in this area of practice. It's not a smart business decision to consider legal advice within a Web hosting forum.

  5. #5
    Originally posted by JayC
    There are a few different ways to approach that. Probably the one I'd consider is this: form the new entity of whichever form you choose, and then sell the business, including any assets and existing contracts, to that new company.
    This is doable ... and you can get a smart lawyer to take care of all that once your biz is successful
    Web Hosting Stuff - Over 10,000+ Hosting Companies Listed
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  6. #6
    Join Date
    Jul 2002
    Location
    kansas city
    Posts
    205
    localhost has given you sounds advise.

    depending on your finances you might have to do things differently, but it wouldnt hurt to call an attorney and see what something of this sort would cost to get taken care of.

    good luck.
    - brian

    failing to plan is planning to fail.

  7. #7
    Join Date
    Aug 2002
    Location
    California
    Posts
    247
    My bank sends free pre-paid legal advice cards with our statements, just too bad nobody every picks up the phone.
    argonblue.com | sales | 800.710.8004
    LA Grand Avenue, Rancho Cordova, cages, racks and power plus HE Fremont cabinets available!

  8. #8
    Join Date
    Oct 2002
    Location
    Hershey, PA
    Posts
    287
    definatly ask a lawyer, it shouldn't cost too much, and it eliminates the risk...
    IQ Studio
    www.IQStudio.net
    [email protected]
    Create.Design.Innovate

  9. #9
    Join Date
    Jun 2002
    Location
    Toronto, Ontario
    Posts
    1,449
    Ask a lawyer, it costed us about $900 CDN to incorporate our company.
    Kaumil P.

  10. #10
    Join Date
    Oct 2002
    Posts
    26
    If you started as a sole proprietorship, the contracts would be between your clients and yourself - personally (even if you had a trade name.) Transfering those contracts to a new entity (as you would have to establish as you grew, such as a LLC, LLP or corporation) would either require:

    1. New contracts.

    or

    2. Transferring, or assigning, the contracts to the new entity.

    Option #2 is obviously the easiest, but if you have a clause that prohibits the contract from being assigned or transfered you'll need to go with the first option.

    Until those contracts are transfered to the new entity (from the sole proprietorship), and until they're nullified or expire, they're still binding (as long as they were valid contracts from the start, but that's a whole other story ). As a sole proprietorship, as you know, you bear full responsibility and liability for those contracts. With a separate legal entity, such as a Limited Liability Company (LLC), Limited Liability Partnership (LLP) or Corporation, the entity carries these responsibilities as it has the capacity to enter into contracts.

    As always -- consult a lawyer before doing any of this.

  11. #11
    Join Date
    Aug 2000
    Location
    NYC
    Posts
    6,627
    Originally posted by AutomateHost
    2. Transferring, or assigning, the contracts to the new entity.

    Option #2 is obviously the easiest, but if you have a clause that prohibits the contract from being assigned or transfered you'll need to go with the first option.
    In fact, it probably wouldn't be a bad idea to include a clause in your contract or TOS starting now that explicitly states that you can reassign the agreement. Most customers or potential customers wouldn't be likely to have a problem with it.

    And of course you'd have a lawyer look over your TOS anyway, right?... so there's just one more clause in there.
    Specializing in SEO and PPC management.

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