Question 1

What is successor liability?

Accepted Answer

Successor liability is the legal principle that a company that acquires another company’s assets may also inherit its liabilities. General rule: the buyer of assets is NOT liable for the seller’s debts (only the seller remains liable). Exceptions: express assumption (the buyer agrees to assume the seller’s liabilities in the purchase agreement), de facto merger (the transaction is structured as an asset sale but effectively operates as a merger), mere continuation (the buying company is merely a continuation of the selling company: same owners, officers, and operations), and fraud (the sale was structured to defraud creditors).

Question 2

How does successor liability apply in Florida?

Accepted Answer

FL application: the courts apply the traditional four exceptions (assumption, de facto merger, mere continuation, and fraud). Florida has also recognized: the product line exception (in some jurisdictions: the buyer that continues the seller’s product line may be liable for defective products manufactured by the seller; FL courts have not clearly adopted this exception). Factors the courts consider: continuity of management and personnel, continuity of the business operations, assumption of obligations, and transfer of substantially all assets.

Question 3

How can buyers protect against successor liability in Florida?

Accepted Answer

Protection: thorough due diligence (investigate the seller’s liabilities: lawsuits, tax obligations, environmental liabilities, employee claims, and product liability), purchase agreement protections (representations and warranties about the seller’s liabilities, indemnification provisions, and escrow for potential claims), asset purchase (structure as an asset purchase, not a stock purchase, to limit liability), and insurance (obtain tail coverage for the seller’s product liability and professional liability). The buyer should: consult with an attorney before the acquisition to structure the transaction to minimize successor liability exposure.

Successor Liability

Successor Liability

General Rule

Exceptions

Buyer Protection

Related Terms

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