USA – OHIO Trends and Developments Contributed by: John F Petrony, Petrony Law, LLC
as an entity and not merely of its business operations. 12 Ohio Jur. 3d Business Relationships 798 (2025). It has been said that the successor entity must be a reincarnation of its predecessor (ie, the old entity in a new hat) as where one entity sells its assets to another with the same people owning both. Id. Thus, a key ele - ment in establishing continuation is a common identity of stockholders, directors and stock. Id. Inadequacy of consideration is another indication that the buyer is a mere continuation. Id.; Welco at Syllabus No 13. In an important decision, the Ohio Supreme Court in Welco rejected an expansion of the mere continuation theory which would have allowed a court to impose successor liability where there are significant shared features between the predecessor and the successor. The court noted that the concerns for predictability and free transferability in corporate acquisitions that had previously led it to decline to expand the test for successor liability in tort were even more compel - ling where the claim was a contractual one. Welco at 348. Since Welco , Ohio courts have been reluctant to impose successor liability where an asset-for-cash transaction takes place among strangers at arm’s length and there is no evidence that the transaction took place to escape liabilities. Per-Co, Ltd. v Great Lake Factors, Inc. , 509 F. Supp 642 (2007) at Syllabus No 7. In Welco , an asset purchaser was found not liable for its predecessor’s breach of contract claim where the buying and selling corporations were strangers and the owners of the purchasing corporation were not owners of the selling corporation. Welco at Syl- labus No 11. It has also been held, on multiple occa - sions, that merely sharing the same physical plant and employees and continuing to market or manufacture the same products of the seller alone are not sufficient to establish a purchaser’s liability under the mere con - tinuation theory. Aluminum Line Products at Syllabus No 24; Kuempel Service, Inc. v Zofko , 109 Ohio App. 3d 591 (1996) at Syllabus No 8. In Aluminum Line Products , it was held that the pur - chaser was not liable as a mere continuation of the seller, although it hired some of the seller’s employ - ees and one of the seller’s former owners became an officer of the purchaser where the corporations were
strangers prior to the sale and the state authorised the purchase of assets both at a public auction and afterwards. Aluminum Line Products at Syllabus No 23. Similarly, a new corporation that was formed by one of the principals of the predecessor was found not liable for the seller’s judgment debt although it oper - ated out of the same physical plant, had the same tel - ephone number and some of the same shareholders, directors, and officers as the new corporation since it had its own ownership and assets, targeted a different market and was considered to exist on its own merits. Kuempel Service, Inc . at Syllabus No 9. There have been some decisions, however, that imposed successor liability under the mere continua - tion exception. In one case, a factoring business was found liable for the debts of its predecessor where the acquiror was owned, managed and controlled by the same individuals who owned, managed and controlled the predecessor, the predecessor received inadequate consideration for its assets, and the same individuals who profited from the operation of the predecessor continued to share in the profits of the buyer. Per-Co at Syllabus No 8. In another case, an LLC was held to be a mere continuation of its predecessor, where the seller’s sole shareholder was also the sole member of the LLC and managed the day-to-day operations for both entities, the LLC did not attempt to offer ade - quate consideration for the assets it acquired, and the LLC retained nearly everything from the seller apart from the corporate form. WRK Rarities, LLC v United States , 165 F. Supp 3d 631 (2016) at Syllabus No 9. Fraudulent Attempt to Escape Liability The fourth and final common law exception to the rule that a buyer in an asset sale does not generally inherit the seller’s liabilities is fraud. Specifically, a fraudulent attempt to escape liability. It has been said that this exception essentially amounts to an application of the general rule against fraudulent conveyances and was created to prevent entities from changing their corporate form to escape liability. Per-Co at Footnote No 15. For the purposes of determining whether the fraud exception applies, indicia of fraud include inad - equate consideration and a lack of good faith. Welco at Syllabus No 6.
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