Successor Liability

"Successor liability," as it can apply to an asset sale, refers to:

1. A.A rule that the buyer's CEO personally succeeds to the seller's civil liabilitiesWrong. Successor liability concerns the acquiring entity's potential exposure, not personal liability of an individual executive.
2. B.A FINRA rule requiring buyers to disclose their financing sourcesWrong. Successor liability is a broader legal doctrine, not a specific FINRA disclosure rule.
3. C.A doctrine under which a buyer can, in some circumstances, be held liable for certain seller liabilities it did not contractually assumeCorrect. This is the essence of successor liability as applied to asset deals.
4. D.A tax provision allowing the buyer to step up asset basisWrong. Basis step-up is a tax concept; successor liability is a liability-exposure concept, and the two are unrelated.

Why: Successor liability is a legal doctrine under which a buyer in an asset purchase can, in certain circumstances (varying by jurisdiction and fact pattern — such as when the deal is viewed as a mere continuation of the seller's business), still be held responsible for certain of the seller's liabilities, even though the buyer did not contractually agree to assume them.

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.