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Corporate/Business Successor Liability

A business is treated as a separate entity from its owner(s) in the eyes of the law. There are, as a result, several legal implications because of a business’ “person” status. C corporations are taxed at the business level and ownership level. Limited Liability Companies, Limited Liability Partnerships and Corporations act as a shield which deflects personal liability away from its owners. And, to the outrage of some, corporations are afforded Free Speech Rights Under the First Amendment, thus enabling business entities to make political donations.

Suppose a business commits legally actionable negligence against you and your family. One year later you file suit against the business only to discover that the owners of the business have dissolved and wound up the business, forming a new, substantially similar business. Are you out of luck because the entity that caused you harm no longer exists?

This is a common problem that requires specialized litigation. In certain situations, a successor business or “new” business will be liable for a previous business’ liabilities or obligations under Missouri’s Corporate Continuation Doctrine. A court will hold a successor business liable for obligations of a previous business by weighing the following factors:

(a) Whether there exists a common identity of officers, directors, and /or shareholders between the previous and successor businesses; (b) whether the new business continued in the same business as the previous business; (c) whether the labor force is substantially the same; (d) whether the assets and liabilities of the previous business (if any) were acquired or utilized by the new business; (e) whether there is commonality between customers and/or vendors.

In the above hypothetical, you and your family may not be out of luck. If a court concludes that some of these factors are present, then it will deem the new business to be a “mere continuation” of the old business and impose liability.

See my post Piercing the Corporate Veil for a related matter.

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