USA – OHIO Trends and Developments Contributed by: John F Petrony, Petrony Law, LLC
Successor Liability in Ohio Asset Acquisitions Buyers looking to acquire a business in Ohio via an asset acquisition must be aware of the risks posed by successor liability principles. In selecting a topic to write for this Guide, the author was surprised to find that not much had been written in the last 20 or so years about the Ohio-specific aspects of this impor - tant topic. This article examines the common law rules governing successor liability in Ohio, together with certain state tax provisions that can be a trap for the unwary in this arena. Common Law Generally Ohio’s common law rules concerning successor liabil - ity do not differ greatly from those of most other US states. Specifically, a purchaser of an entity’s assets is not generally liable for its liabilities unless: • there is an express or implied assumption of such liabilities; • the sale of assets amounts to a de facto merger/ consolidation; • the purchaser is a “mere continuation” of the seller; or • the transaction is a fraudulent attempt to escape liability. Aluminum Line Products Co. v Brad Smith Roofing Co., Inc. , 109 Ohio App. 3d 246 (1996) at Syllabus No 20. Assumption of Liabilities Not surprisingly, perhaps, there has not been a great deal of case law regarding the assumption of liability exception. In one decision, a court held that a buyer’s purchase of a warranty list did not mean, by implica - tion, that it assumed the related warranty liabilities absent evidence to the contrary. See Id. at Syllabus No 21. Conversely, another court found that a succes - sor had impliedly assumed liability for its predeces - sor’s debt to a Certified Public Accountant where it had paid 14 monthly instalments on this pre-existing obligation. Mohammadpour v Thomas , 2005-Ohio- 3853. De Facto Merger/Consolidation A buyer that purchases substantially all of the assets of another entity may be held responsible for the
liabilities of its predecessor where the transaction amounts to a de facto merger or consolidation. 12 Ohio Jur. 3d Business Relationships 797 (2025). A “de facto merger” is a transaction that results in a dissolu - tion of the predecessor and is in the nature of a total absorption of the previous business into the succes - sor. Welco Industries, Inc. v Applied Cos. , 67 Ohio St 3d 344 (1993) at Syllabus No 8. The hallmarks of a de factor merger include a continuation of the previous business activity and personnel, continuity of owners resulting from a sale of assets in exchange for equity, the immediate or rapid dissolution of the predecessor and assumption by the buyer of all liabilities and obli - gations ordinarily necessary to continue the predeces - sor’s business operations. See Id. at Syllabus No 10. All of the hallmarks of a de facto merger/consolida - tion do not need to be present in order for it to occur and a successor to be liable for the obligations of its predecessor. 12 Ohio Jur. 3d Business Relationships 797 (2025). Courts have generally narrowly construed the de facto merger/consolidation exception in Ohio. In a seminal decision, the Ohio Supreme Court found that an asset purchase agreement was not a “de facto merger” where the transaction involved a sale of assets for cash and the selling corporation did not dissolve. Welco at Syllabus No 7. Likewise, the exception was found not applicable where the purchase at issue occurred at a public auction and did not involve any transfer of stock for assets, none of the seller’s owners became owners of the purchaser, the seller dissolved before the purchase and did not continue as a going concern or merge into purchaser and there was no evidence that the purchaser assumed the seller’s liabilities. Alu - minum Line Products at Syllabus No 22. In one case, however, the exception was held to apply where the successor acquired the predecessor’s assets for no apparent consideration, the principal owner remained the same for both entities, and the predecessor’s con - tracts and equipment were transferred to the succes - sor. Mohammadpour v Thomas , 2005-Ohio-3853. Mere Continuation Of the common law successor liability exceptions, it seems that the mere continuation theory has generat - ed the most case law. In Ohio, the “mere continuation” exception requires a continuation of the predecessor
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