USA – OHIO Trends and Developments Contributed by: John F Petrony, Petrony Law, LLC
As with the assumption of liability exception, there has been a limited amount of helpful case law interpreting this exception. There are a few decisions, however, which shed some light on its parameters. First, a pur - chaser was found not liable for the wrongful conduct of the seller on the ground that the sale was entered into fraudulently where the purchase was at a public auction for purposes of repaying the seller’s debt to the state and the purchase of assets was authorised by the state. Aluminum Line Products at Syllabus No 25. Another court, however, did hold a factoring busi - ness liable under the exception where it found the transfer of assets was for inadequate consideration and the owners of the predecessor formed the acqui - ror to benefit themselves and protect the predeces - sor’s stock from attachment by creditors. Per-Co at Syllabus No 9. Ohio Income Taxes Next, the discussion turns from the Ohio common law to an area that can be a real trap for the unwary. Specifically, as in most other states, there is poten - tial for an asset buyer in Ohio to be held liable for the predecessor’s state tax obligations. Strangely, in the author’s experience, these requirements are often either overlooked by buyer’s counsel or consciously regarded. First, Ohio provides by statute that income tax required to be withheld and paid to the state prior to the time of sale becomes due and payable immediately and the employer must make a final return within 15 days after the date of sale. Ohio Revised Code Section 5747.07 (H) (Baldwin 2025). Most importantly, the successor to the seller’s business must withhold enough of the purchase money to cover the amount of taxes, interest and penalties due until the former owner produces a receipt from the Ohio Tax Commissioner showing that the amount has been paid or a certificate indicating that no such taxes are due. Id. If the purchaser fails to withhold the requisite amount, the purchaser is per - sonally liable for the payment of taxes, interest and penalties accrued and unpaid during the operation of the business by the former owner. Ohio Excise Taxes As with income taxes, if an entity liable for excise tax - es sells its business, those taxes, along with interest
and penalties owed prior to that time, become imme - diately due and payable. Ohio Revised Code Section 5739.14 (Baldwin 2025). The business is then required to make a final return concerning such taxes within 15 days after the date of selling the business. Id. Again, as with Ohio income taxes, a sufficient amount of the purchase price must be withheld by the buyer in order to cover the amount of such taxes; which funds may be turned over to the former owner when it produces a receipt from the tax commissioner show - ing that the taxes have been paid or when the seller produces a certificate indicating that no taxes are due. Id. Should the purchaser fail to withhold a sufficient amount, then it becomes liable for the payment of the taxes, interest and penalties accrued and unpaid during the operation of the business by the former owner. Id. Conclusion Buyers looking to acquire substantially all of the assets of an Ohio-based business must be keenly aware of the governing successor liability rules that could expose them to the seller’s pre-existing obli - gations post-closing. The common law requirements are particularly important when the seller is financially troubled and looking to either sell its assets to a third party or reorganise internally. The common law pro - vides that a purchaser of an entity’s assets is generally not liable for its pre-existing obligations, 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. Different concerns are presented by each of these exceptions. First, it seems that the assumption of liabilities exception can best be dealt with by careful drafting in the underlying deal documents, combined with a disciplined approach by the buyer in respecting the contractual allocation of liabilities in practice. The fraud exception risk may be minimised by ensuring that adequate consideration is paid in the acquisition
1426 CHAMBERS.COM
Powered by FlippingBook