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US US Company Registration Introduction to Disposing of All Corporation's Assets in U.S.A
KNOWLEDGE|
(1) |
Difference in successor liability from the merger In the disposition of assets, we do not expect successor liability. Unlike mergers, which will feature successor liability. In the merger, at least one business entity ceases to exist. Thus, we must have successor liability: the surviving company must succeed to the rights and liabilities of the entities that disappear; those rights and liabilities must be vested somewhere, and the original holder of those rights and liabilities no longer exists. In the disposition of assets, however, no entity disappears. The company that disposed of its assets still exists (and, indeed, now should have considerable cash, because it just sold its assets). Because the company disposing of its assets still exists, a creditor of the selling corporation can sue it. And if the selling corporation dissolves, it will be required to discharge its liabilities before distributing assets to shareholders. Accordingly, as a general rule, successor liability is not expected in a sale of assets. |
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(2) |
Exceptions to this general rule of successor liability (a) One, obviously, is when the disposition of assets provides otherwise. Thus, the company buying assets may agree in the sale to assume liabilities of the selling company. (Presumably, doing so will permit the buyer to buy the assets for a lower price.) (b) Another exception is the “mere continuation" doctrine. Under this, if the corporation buying assets is a mere continuation of the selling company, the court will apply successor liability. For instance, if the buying company has the same management and engaged in the same business as the selling company, a court may equate the two corporations and find the buyer to have assumed the seller's obligations. (c) Finally, another exception is the “de facto merger” doctrine by which a court concludes that what was consummated as a sale of assets was “really” a merger. It reviewed the case law on “mere continuation" and “de facto merger" and reached an interesting conclusion: no case had ever imposed successor liability in a sale of assets if the sale was for adequate consideration. Stated another way courts will impose successor liability in a sale of assets only if the sale was for inadequate capital. |
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Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |
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