Successor corporations offer many potential advantages to both the company selling its assets and the one making the purchase. The seller may be looking to retire, require capital to start a new business venture, or be unable to continue managing the company. Whatever the case, they will enjoy a payoff for the time, effort, and capital invested in growing equity in the business.
The buyer, on the other hand, can hit the ground running after changing the name of the company. They get to take over a pre-established and fully operational entity, often gaining assets, infrastructure, and a fully trained staff in the process.
Of course, buying any business entails more than just gaining its money-making apparatus. You’re also taking on potential liabilities in the process. Below are some liabilities you should be aware of before entering into a successor corporation merger, along with ways you can avoid them.
Types of Liability in Successor Mergers
Any time one company buys another, it agrees to accept both its assets and debts. (It’s exceedingly rare for a business to have no debts.) In addition, as part of any sale, the buyer is granted access to financial information to ascertain the value of a company, which should include an accounting of all assets and debts.
However, liability in a merger doesn’t just apply to debts but other obligations that are passed along. For example, suppose a faulty or hazardous product is already on the market during the merger. In such a case, the buyer could take on any liability for product recalls, lawsuits, and other potential fallout.
Depending on the type of business, environmental liabilities may also be at play. Whether the company is involved in mining raw materials, transporting or storing hazardous materials, or manufacturing that involves some level of pollution, it could be causing an environmental impact that entails clean-up or results in fines, lawsuits, or other liabilities.
Liabilities related to employment law could also arise following a merger. New owners must carefully consider the process of layoffs and firing in the wake of a merger to comply with existing laws and avoid lawsuits.
Strategies to Avoid Liability
There are certainly instances in which the seller retains some liability, even after a merger. However, in cases where the buyer continues the same operation or product line, as is the case with a successor corporation merger, they may be held fully responsible for liabilities.
It’s always best to avoid that instead of finding out after the fact, and that is where an experienced business law attorney can help. You’ll need to ensure your contracts are iron-clad, including agreements concerning disclosure and liability. On top of that, you will also need to dig into every facet of the company to fully understand what you’re purchasing.
While a seller must disclose any potential liabilities, it’s always best to do your research. After all, you’re the one who will have to deal with the consequences once the merger is complete. There might also be liabilities the seller is unaware of that you uncover during a company audit or other assessment. The bottom line is that you need to protect your interests.
Targeted Legal Guidance and Support
A successor corporation merger can be a complicated affair. Between following regulations, performing assessments, drafting contracts, and managing filings, it’s remarkably easy for important details to slip through the cracks.
That said, a qualified attorney from a reputable firm can represent your interests and help to discover and minimize potential liabilities. If you are considering a successor corporation merger in Dallas, TX, a capable and experienced Business Law attorney at Sul Lee Law Firm can offer the legal advice and services you need. Contact us now to schedule an initial consultation.