Are You Buying A Business? Beware of Unexpected Liabilities

Under Ohio law a purchaser of a business inherits the unemployment compensation contribution rates of the former business when the purchaser acquires “all” of the trade or business. Even when a business purchase is structured as an asset sale, the purchaser may inherit the seller’s unemployment compensation history and other unwanted obligations. 

As explained in a recent Ohio Court of Appeals decision, when an Ohio business purchased assets from a local bar and grille, they acquired their liquor license, rights to their name, goodwill, and some memorabilia and décor. They weren’t aware that they were also acquiring the businesses’ obligations for payment of its unemployment compensation rates.  The Ohio court reaffirmed that liabilities flow with the assets in a business sale. Although the purchasers most likely believed they were protected through an asset purchase of the business, they still ended up with unintended and unexpected liabilities.

The buyers argued that the assets they purchased were insufficient to operate the new tavern because they still needed other items such as kitchen equipment, tables and chairs, jukeboxes, pinball machines, and inventory. However, the Ohio Unemployment Compensation Review Commission argued that they did purchase all of the assets “integral” to conduct the business.  The court agreed and the seller’s unemployment compensation contribution rates flowed to the new owners. 

With careful review by an attorney and proper legal documents this unwanted inheritance of liabilities may be avoidable. If you are considering purchasing a business, your Day Ketterer attorney can help you evaluate potential liabilities and options.

For more information please contact your Day Ketterer attorney, or email info@dayketterer.com.