Asset Sale

In an asset sale, the buyer purchases specific assets (and typically assumes only specifically identified liabilities) of the target business, rather than the legal entity itself. What happens to liabilities the buyer does NOT specifically agree to assume?

1. A.FINRA assumes responsibility for any unassumed liabilitiesWrong. FINRA has no role in assuming a private company's unassumed liabilities.
2. B.They automatically transfer to the buyer along with the purchased assetsWrong. This describes a stock sale's effect, not the selective liability assumption structure of an asset sale.
3. C.They are automatically forgiven once the asset sale closesWrong. Liabilities are not extinguished by an asset sale; they remain obligations of the retaining party, generally the seller.
4. D.They generally remain with the selling entity, which retains responsibility for themCorrect. Unassumed liabilities stay with the seller in an asset sale, as a general matter.

Why: In an asset sale, liabilities that are not specifically assumed generally remain with the selling entity, which retains responsibility for them — this selective, cherry-picking structure is a key reason buyers often prefer asset deals when a target carries meaningful legacy liability risk.

Target Co. is currently a defendant in a significant pending lawsuit with an uncertain outcome. All else being equal, which deal structure would a prospective buyer typically prefer in order to limit its exposure to that lawsuit, and why?

1. A.A stock sale, because it is generally simpler to executeWrong. Simplicity does not address the buyer's concern about inheriting the litigation liability, which a stock sale would generally bring along by default.
2. B.An asset sale, because the buyer can decline to assume the specific litigation liability and leave it with the sellerCorrect. Selective liability assumption in an asset sale is exactly the tool that addresses this concern.
3. C.Either structure works identically, since litigation liability always follows the business regardless of structureWrong. The two structures treat unassumed liabilities differently; this is precisely why structure choice matters here.
4. D.A tender offer, because tender offers automatically eliminate all seller liabilitiesWrong. A tender offer is a method of acquiring shares; it does not itself eliminate the target's liabilities.

Why: A buyer concerned about a known contingent liability like pending litigation would typically prefer an asset sale, because it can select which specific assets and liabilities to assume and can decline to assume the litigation liability, leaving it with the seller — whereas a stock sale would bring the litigation exposure along with the acquired entity by default.

Is it accurate to say that an asset sale is always the better structure for a buyer because it lets the buyer avoid the seller's liabilities?

1. A.Yes, an asset sale always fully insulates the buyer from every seller liabilityWrong. Successor liability doctrines can still expose the buyer to certain liabilities even in an asset deal, so the insulation is not absolute.
2. B.No — successor liability doctrines can still reach certain liabilities in an asset deal, and asset deals also require more third-party consentsCorrect. Both the successor liability risk and the added consent burden are real trade-offs against automatically preferring an asset sale.
3. C.No, because asset sales are illegal in most statesWrong. Asset sales are a common and legal transaction structure; the issue is not their legality but the limits of the liability protection they provide.
4. D.Yes, but only for privately held targets, never for public companiesWrong. The successor liability and consent-transfer issues are not limited to private targets; the private/public distinction is not the relevant factor here.

Why: No. While an asset sale lets a buyer selectively decline to assume specifically identified liabilities, courts in some jurisdictions apply "successor liability" doctrines under which certain liabilities — commonly product liability or environmental liabilities — can still follow the buyer even in an asset deal, particularly if the transaction is viewed as a mere continuation of the seller's business. Asset deals also typically require more third-party consents (contracts, leases, permits) to transfer, adding complexity a stock sale avoids. The "always better for the buyer" framing ignores both of these real trade-offs.