I recently received a question from a client about record retention after a business is closed or transferred to a new owner in an acquisition, and realized that there were some good resources out there that I should make available to clients and blog readers.
The first is a Small Business Administration checklist for buying an existing business, and the second is an SBA list of steps to closing a business. Both excellent, to-the-point guides.
There seems to be a decent amount of argument out there regarding who should retain the prior records — the previous or new owner — and in part this depends on the contract language, in terms of who is liable for any issues that arise from prior-owner activities. It also depends on whether or not the business issues financial statements to stakeholders — in which case Sarbanes-Oxley will apply.
Document retention requirements in the Sarbanes-Oxley Act apply to public, private and nonprofit businesses. While an acquisition agreement should clearly identify your level of liability with regard to past business records, you should fully address document management before merging the record-keeping system of an acquired business. Before getting started, review record retention requirements in the Code of Federal Regulations, the Internal Revenue Code and state and local government statutes.
In the world of employee record retention, if any of the employees remain at the company, then the new owner should absolutely retain those records, especially in case of any questions by the state unemployment bureau.
For larger companies, the question of record retention is much easier — the new owner should always retain records in a merger or acquisition.
One thing is clear, however: in the event that the previous owner disappears, the new owner is going to wish they had access to their records… so the safe approach is to retain them, even if technically, the liability for prior acts does not rest on the new owner’s shoulders.
In the case of the prior owner, same advice: if an agency comes knocking, better safe than sorry. At the very least, keep copies of payroll, sales tax, and income tax returns.
Hello we are in California. We had purchased some guns but did not qualify we got our money returned on a small card sized gift card allowing us to get credit for a different purchase. We gave this card to our daughter I went with her back to the same gun shop and she bought herself some guns. Their routine is to lay the guns in the back storage room until you have gone through the full process to be approved through the government to own the guns. Please note you do have to buy the guns first. As my daughter went through the process and went back to give them the documents that they had requested in that time period the gun store had been bought out by another gun store they say they do not have her records and can no longer honor the gift card the amount that she actually spent they say they have no way to track it. They seem unwilling to work with us. The amount was about 800 on the gift card about 600 of that was spent on the guns the other what was left was going to be spent on ammunition. But now of course they conveniently say they cannot track the information. Is there any recourse for us?
Hi, Lily. This depends on two things: 1) state law, and 2) how the business was acquired.
As for state law, I’m not a legal expert, nor do I practice in California — but from the looks of it, you have a good case and could probably report them to the authorities:
https://www.dca.ca.gov/publications/legal_guides/s_11.shtml
As for how the business was acquired, if the old owner sold the stock or member interest to the new owner, then the new owner would be liable. If the old owner sold only the assets to the new company, then the old owner would still be liable. In either case, someone owes you your money or product — the question is whether it’s the new or old owner.
It’s up to you as to whether or not that amount of money is worth going after — my recommendation is to do more internet searching regarding state laws in this area and go back to the store to let them know that if it turns out they are legally liable, you will report them to the state. I’m sure they don’t want that to happen.
Good luck.
Wow, I did not think I would get a response, therefore I didn’t realize you had responded. Thank you so much! I really appreciate the lead. I will do what I can to get the funds back.
Good luck! Let us know how it turns out.