Successor Liability: When You’re Still on the Hook, Even If Replaced

In all forms of business, investors and owners come and go. In most situations, an owner’s liability does not cease, even when a successor has taken his place in the company. Often times, previous owners are still liable for liabilities that accumulated while with the company. Other times, a chain of events is set in place that may lead to a liability emerging after the owner has left the company. Finally, a corporation may buy some or all of the assets of another corporation. That is why it is essential for business owners to understand how successor liability works.

Courts may impose successor liability in instances where the successor may be the only one who can compensate the injured plaintiff. The policy behind such liability is that there is a risk that assets will be sold for less than fair consideration when attempting to compensate the injured plaintiff.

Another situation where successor liability is an issue arises when a corporation acquires part of, or the entirety of, another corporation. Continuity of an enterprise alone is not enough reason for successor liability. Generally, a corporation acquiring a portion or all of the assets of another corporation does not acquire the corporation’s liabilities and debts except where one of the following four situations emerge: it is express or implied in the agreement; the acquisition actually amounts to a merger or consolidation; the successor corporation is actually a continuation of the predecessor; or the agreement was fraudulent, lacked good faith, or made with inadequate consideration. There are situations, therefore, where a previous business owner will still be liable for company obligations even after it has been taken over by another company.

It is important to realize as a business owner that you are not off the hook for your company’s obligations just because you are no longer with the company. It is an all-too-common scenario where a claimant comes after you for a debt despite the fact you are no longer with the company. When that time comes, it is wise to have the right legal team in your corner. Call the Trembly Law Firm at (305) 431-5678 today to schedule a consultation.