Successor liability

Definition

The rules leaving a buyer answerable for some of a seller's debts.

Why It Matters

Buying assets rather than stock is meant to leave the seller's problems behind, and mostly it does, but several categories follow the business itself no matter what the paperwork says. This is why a lawyer asks for state tax clearance certificates before closing and why a holdback is worth arguing for: an unpaid payroll tax balance can arrive at your door a year after the wire, addressed to the company you now own.

In numbers: A seller who leaves $40,000 of unpaid state sales tax behind can hand that bill to the buyer months later. A clearance certificate costs a few hundred dollars, and a 10% holdback on a $1.2M deal keeps $120,000 within reach while the certificates come back.