ALP: If I purchase all of the assets of a company, will I be responsible for satisfying that company’s existing contracts?

August 2005

Maybe.  The general rule in Ohio is that the purchaser of substantially all of a company’s assets is not responsible for the contractual obligations of the selling company.  However, the Ohio Supreme Court has adopted four exceptions to this general rule.

First, a purchaser may be responsible for any contractual obligations it expressly or implicitly agrees to assume.

Second, a purchaser may be liable if the sale transaction is determined to be a de facto merger or consolidation of the seller and purchaser.  A de facto merger or consolidation may be found when assets are sold for an equity interest in the purchaser, followed by the rapid dissolution of the seller and the continuation of the seller’s business in substantially the same fashion as prior to the sale.

Third, liability may attach if the purchaser has the same owners as the seller and continues the business of the seller using the same assets.

Finally, a purchaser may be held liable for the seller’s contractual obligations if the sale transaction is determined to be fraudulent and part of an effort to shield the transferred assets from liability.

The satisfaction of any of these exceptions may result in what is commonly referred to as “successor liability”.   By limiting a purchaser’s liability to these four exceptions, Ohio has taken a more conservative approach to successor liability than several other jurisdictions, most notably California.  Nonetheless, to avoid successor liability in Ohio, you should keep in mind the four exceptions discussed above when structuring the sale transaction and negotiating the purchase agreement.

Practices

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