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Corporate Continuation, Asset/Equity Sales

Businesses often re-organize and suffle around their legal structure. This can result in a shuffling around of legal liabilities.

Generally, when a business sells or transfers its assets to another business, the latter is not responsible for the debts and liabilities of the former. Brockman v. O’Neill, 565 S.W.2d 796, 798 (Mo. Ct. App. 1978). When there is an equity (e.g., corporate shares or LLC membership interest) sale or transfer, however, the recipient usually does assume responsibility for debts and liabilities. For this reason, asset transfers and sales are sometimes preferred because they do not come with the liabilities “attached.”

There are four (4) exceptions to the rule that asset sales or transfers do not transfer liability: (1) where the purchaser expressly or implicitly agrees to assume such debts, (2) where the transaction amounts to a consolidation or merger of the business, (3) where the purchasing business is merely a continuation of the selling corporation or (4) where the transaction is entered into fraudulently to escape liablity for such debts. Id.

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