In targeting a company for purchase, many buyers prefer to purchase the assets of a company, as opposed to the stock (or other equity) of the company because, as a general rule, the buyer of assets in an asset acquisition does not automatically assume the liabilities of the seller.  Accordingly, an asset acquisition generally allows the buyer and seller to select which assets and liabilities will be transferred.  However, in certain circumstances, the buyer can be held responsible for liabilities of the seller if a court determines that certain exceptions are met.  Louisiana courts have been willing to impose liability on asset-sale successors on the following grounds:

  1. The buyer assumed the liabilities;
  2. The transaction was entered into to defraud the seller’s creditors;
  3. The buyer company is a “mere continuation” of the seller company; and
  4. The transaction was “in fact” a merger.

The “mere continuation” exception is probably the most likely to catch a buyer off guard.  Louisiana courts, in considering whether an asset-sale successor is a “mere continuation” of the seller company, have considered the extent to which the buyer company has retained the same employees, supervisory personnel, company name, and physical location as the seller company.  Further, prior business relationships may be considered, as well as the continuity of general business operations and the identity of the business in the eyes of the public.  A threshold requirement to trigger a determination of whether successor liability is applicable under the “mere continuation” exception is that one company must have purchased all or substantially all the assets of another.

If you plan to purchase all or substantially all of the assets of a company, especially if your goal in choosing an asset purchase over a stock purchase is to avoid or minimize your liability for the seller’s liabilities, you should carefully consider the ways in which you could be seen as merely continuing the seller’s business under the factors described above.  You may be signing on for more liability than you anticipate.