Factors include continuity of ownership through stock consideration, continuity of management and operations, dissolution of the seller, and assumption of liabilities necessary for uninterrupted business.
Continuity of ownership is the most weighted factor.
Alternative Names:
De Facto Merger Doctrine|Constructive Merger
Why it Matters?
Continuity of ownership through stock consideration is the factor most jurisdictions weight heaviest, which means an all-cash asset purchase rarely produces de facto merger liability regardless of the other factors. That makes consideration structure a meaningful protection in acquisitions of businesses with contingent exposure. Prompt dissolution of the seller after closing supports the doctrine and should be weighed against the tax and administrative reasons for it.
Frequently Confused with
Related terms
Frequently asked questions
Which factor matters most?
Does prompt seller dissolution matter?
