Between Fitbit’s, iPad’s, Doc McStuffins check-up kits and numerous other goodies, an estimated $601.8 Billion was spent at retailers this past holiday season.
The end of the year is a busy time for business transactions as well, especially for those business owners who have an expiring tax incentive which may require closing by December 31.
Buyers need to be sure they fully understand what they are purchasing whether they are acquiring the stock or assets of a business.
Often, acquisitions of businesses are structured as asset purchases. The benefits of structuring an acquisition as an asset purchase include being able to purchase only those assets the acquirer actually wishes to acquire and leaving many of the liabilities in the selling company so they remain the responsibility of the seller.
However, buyers need to be aware that case law and various statutes may foist liability upon them even when they believe the seller has retained certain liabilities. Some of these potential liabilities are well known by acquirers, such as successor employer claims. Other liabilities can be hidden. Understanding the seller and its intent for making provision for certain liabilities can be crucial for buyers. For example, if a seller seeks to liquidate after the closing of an asset sale, many of its remaining liabilities may become obligations of the buyer even if the seller retained those responsibilities as part of the agreement.
Perhaps just as significantly, if the acquirer is purchasing the assets of a distressed company, the risk of a fraudulent transfer claim needs to be considered. While the acquirer wants to receive the best price possible for the assets, if the seller subsequently files for bankruptcy and it is determined the seller did not receive “reasonably equivalent value” in exchange for the transfer of assets to the acquirer and one of a variety of other factors existed at the time, then the transfer may be able to be avoided.
No one wants to give his or her child a broken Doc McStuffins check-up kit. Likewise, buyers need to use their negotiations and due diligence period to assure they are not unknowingly acquiring many of the liabilities of the seller which they wish to avoid.