An asset purchase can avoid the buyer's assuming the liabilities of the acquired business (target) and bypass many governmental regulations dealing with mergers. Also, an asset purchase can avoid the securities problems that may result from an equity purchase.
Liabilities of Seller.
Generally, an asset purchaser does not assume the seller's liabilities. Still, the seller may require the buyer to assume some or all of the liabilities as a condition of the sale. If a buyer agrees to assume the liabilities of the acquired entity, it may require:
- A final audit of the seller's books before closing and deferring payment until receipt.
- Personal representations, warranties, and indemnities from the seller's governing persons and equity holders.
- Withholding a part of the purchase price under an escrow arrangement.
If the buyer assumes seller liabilities, creditors may be considered third-party beneficiaries of the acquisition agreement. They may sue the buyer directly if the liabilities are not paid when due.
A buyer may be held liable for the obligations of a seller under the Texas fraudulent transfer statute. This law states that a transfer is fraudulent to a creditor if the seller intended to hinder, delay, or defraud creditors. A transfer is also fraudulent if the seller does not receive reasonably equivalent value for the property transferred and the debtor was engaged in a business or transaction for which the debtor's remaining assets were unreasonably small, or when the seller is insolvent at the time or became insolvent because of the transfer.
THIS INFORMATIONAL MEMORANDUMFROM THE LAW OFFICES OF THOMAS D. SOLOMON is provided as a courtesy to provide readers with items of interest in the business acquisition area. It is not intended to be an exhaustive treatment of its subject matter but an overview of some elements of such subject. It is not intended to be legal advice or a legal opinion and should not be relied on in making legal or business decisions. If you have questions, please call.