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What are pros and cons of forming a successor business?

On Behalf of | Aug 5, 2021 | Business Formation

You might have formed a business in the past but a poor economy, bad marketing or perhaps just bad timing made it impossible for your company to succeed. But you feel confident that your ideas can still work, and you may plan on creating a successor company that picks up where your old business left off.

A successor company may share the same employees and board of directors with a prior company as well as offering the same or similar goods or services. Chron explains that creating a successor company offers benefits but also drawbacks.

The pros of a successor business

With a successor company, you might not have to worry about searching for new workers. You just keep your workforce from your old business. You can also bring over your old inventory and equipment. This lets you save money that you would have spent on new materials for a new business.

You also retain the business experience offered by workers and managers from your previous company, allowing your new enterprise to hit the ground running. It may not take much more than a slight modification of goods or marketing to make the new company profitable.

The drawbacks of a successor business

The problem with a successor business is that if the prior company failed, you need to make sure your new company does not repeat mistakes that damaged the old company. The public, however, may have doubts about your successor company if they think it has not changed sufficiently from the previous one.

Generally, successor companies are not responsible for the prior company’s liabilities, but this might change for a number of reasons. A judge might rule that your company is just a continuation of the old company and allow creditors to come after you for debts incurred by your prior operation. Some successor companies run into trouble when a judge rules the company only exists to avoid liabilities or debts.

Weigh your options

Whether you create a successor company is up to you. Successor businesses can become successful and thrive for many years. But if you want to try your hand at a new endeavor, a new and different business may be a better option for you.