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Theories Of Successor Liability When Incorporating An Existing Business

How Do I Hold You Liable?  Let Me Count The Ways . . .

When the owner(s) incorporate an existing business, the corporation is not necessarily a tabula rasa with respect to the creditors of the business being incorporated.  Indeed, a creditor of the business may try to hold the corporation or its assets liable under several possible theories, including:

  • Express assumption;

  • Implied assumption;

  • Estoppel (see, e.g., Reid v. F.W. Kreling's Sons' Co., 125 Cal. 117, 57 P. 773 (1899));

  • Failure to comply with the Bulk Sales Law (discussed in this post);

  • Uniform Voidable Transactions Act (Cal. Civ. Code §§ 3439-3439.14 (fka Uniform Fraudulent Transfer Act));

  • De facto merger;

  • "Mere continuation" (See Ray v. Alad Corp., 19 Cal. 3d 22, 136 Cal. Rptr. 574, 560 P. 2d 3 (1977);

  • Alter Ego;

  • Conversion statutes (e.g., Cal. Corp. Code §§ 15911.09(b)(2) & 17710.09(b)(2)).

A creditor's success under any of these theories will, of course, depend upon a variety of factors, including the nature of the creditor's claim, the mechanism by which the corporation is created, and/or even the intent of the transferor.  Thus, while there may be a multiplicity of theories, success is by no means assured.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 173
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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