One big reason for a purchaser to structure a business acquisition as an asset purchase is to avoid being subject to the seller’s liabilities, known and unknown. Certain liabilities, however, could follow, and attach to, the purchaser’s business, unless specific precautions are taken. For example, tax obligations often constitute liens on the seller’s assets, meaning that the assets cannot be sold without the satisfaction of the obligation. Assets that are purchased subject to a tax lien can be collected and liquidated by the tax authorities. Another category of liabilities, known as strict liabilities, can be collected from a company regardless of fault. An example of this is that liabilities for violations of environmental laws can be assessed and collected against all parties occupying the land on which the violation occurred, regardless of whether a party (in this case the purchaser) occupied the land at the time of the violation. In order to minimize the possibility of being subject to a seller’s liabilities, the purchaser should a) conduct thorough due diligence in order to unearth these potential liabilities and b) insist on adequate indemnification from the seller in the event that one of these liabilities arises. Otherwise, the liabilities could come back to haunt the purchaser.
ABOUT GLENN D. SOLOMON
Glenn D. Solomon Esq. is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress
ABOUT OFFIT KURMAN
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