WB Law Group, a business litigation attorney San Diego (http://wblawgroup.com/how-to-avoid-successor-liability/), talks about how to avoid successor liability.
Imagine your company decides to purchase a business. The business is up for sale at a great price and seems a worthy investment for future revenue. You purchase the business, oversee a merger, and quickly begin to start generating revenue from your new enterprise. Everything seems great, right?
Two years later, however, things don’t seem so great. A product that was sold by the company before you acquired it is found to have a serious defect and you are faced with a lawsuit for an error that wasn’t even made by your current infrastructure, yet you are still responsible. If it was a pharmaceutical company, perhaps a pill that was sold is found to have negative side effects long term that were not known previously. If it’s a vehicle or piece of electronic equipment that was sold, perhaps the product is found to be defective after a period of time and may result in fires being started or injury during use of the product.
These are just a couple examples of defects that can be discovered years after initial development. Many times, the original owners of the company are no longer in control of it and it becomes the problem of whomever acquired the company. This situation is known as successor liability, and there are many ways to prevent it from happening to you through a business acquisition.
Avoiding Successor Liability in a Stock Purchase
Successor liability may exist in a situation where a company purchases a controlling interest in a company through their stock, a partnership interest in a partnership, or the membership interests of a limited liability company. In all these situations, the buyer steps into the shoes of the seller and may share many of the same liabilities as the entity.
Avoiding Successor Liability Through Not Complying With Bulk Sale Laws
California holds a set of bulk sale laws intended to protect trade creditors by imposing liability on the buyer. Whenever making a large purchase, such as over 50% of a company’s assets, it is in the buying party’s best interest to provide appropriate notice of the bulk sale to the county tax collector. Again, this protects the buying party from unknowingly buying into liabilities the seller is trying to free themselves of.
Hiring a California Business Attorney
Avoiding successor liability can be done easily by working with a reputable attorney every step of the way when considering acquiring another business. A professional business attorney can advise you about potential risks and help you prepare the necessary paperwork appropriately so you do not find yourself caught “holding the bag” due to some other company’s negligence that is now your own.
WB Law Group is a professional law firm dedicated to assisting you with your business needs. For questions, or to schedule a consultation, contact us today at 559.431.4888 (Fresno) or 619.399.7700 (San Diego).
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