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Key takeaways:
- Lawsuits against sold companies are not an automatic dead-end.
- The company’s post-sale existence determines the initial course of action.
- Shareholders might bear the responsibility in cases where the company dissolves after a sale.
- Corporate successor liability provides a framework for suing the purchasing company.
- State laws differ; hiring legal expertise is essential.
The Continuation of a Company After a Sale
While selling a company is a transformative process, it doesn’t necessarily shield it from legal challenges. A sold company that remains in existence post-sale is as liable as it was before the transaction. Simply put, the change in ownership doesn’t dissolve the company’s legal obligations or liabilities.
Diving into the Depths of Shareholder Responsibility
In scenarios where the sold company dissolves post-sale, hope isn’t lost for potential litigants. Particularly in close corporations – those not publicly traded and often resembling small businesses or sole proprietorships – shareholders may find themselves facing liability. This arises from the concept of “piercing the corporate veil” or “alter ego” liability.
Shareholders can be held responsible if they:
- Blur the lines between personal and company assets.
- Act in ways that disregard the company’s separate entity.
However, state laws play a crucial role in determining the extent of this liability. In most cases, the liability is limited to the assets received or their proportionate share of the claim.
When the Buyer Takes the Heat
There’s a misconception that buying a company washes away its past sins. Not always. A doctrine termed “corporate successor liability” comes into play, outlining several exceptions where the buyer could be held accountable:
- Fraudulent Intentions: If a company’s purchase is riddled with deceit or was made to dodge debts, the court may rule against the buyer.
- Assumption of Liabilities: Sometimes, the buyer voluntarily assumes the seller’s liabilities, either explicitly through contract agreements or implicitly through actions that suggest an intention to shoulder the debts.
- De Facto Merger: When a company’s sale closely mimics a merger, sans liability assumption, the buyer might find themselves in the legal crosshairs. Courts consider factors like continuity of ownership, business operations, and the early dissolution of the seller.
- Mere Continuation: Think of this as a rebranding. If the sale just slapped a new label on an old business, the buyer might be deemed responsible.
- Continuity of Enterprise (For Personal Injury or Product Liability): This digs deeper into the seller’s business operations, focusing on factors like continuity of assets and management.
- Product Line (Specific to Personal Injury): If the buyer continues producing the seller’s product line, they may inherit liability, especially for defective products.
It’s essential to note that while these exceptions provide a framework, the interpretation often depends on state laws and specific case nuances.
Seeking Expertise is Crucial
The labyrinthine nature of corporate law, especially when it concerns what happens to a lawsuit if a company is sold, necessitates expert intervention. As state laws diverge and the legal realm gets murkier, an adept business attorney becomes an invaluable asset. Their insights can help navigate this challenging terrain and provide clarity on the best course of action.
Conclusion
Whether it’s due to a debt or an injury, holding sold companies accountable is not a straight path. While the initial company structure and post-sale status set the stage, it’s the intricate dance of state laws and specific exceptions that determine the final outcome. When considering litigation against a sold company, arming oneself with legal expertise is the best strategy, ensuring informed decisions and effective navigation through the legal maze.
