Series 79 practice questioneasyStock vs Asset Purchases
In an asset purchase, which of the following is generally true regarding the target company's liabilities?
- AThe buyer can selectively choose which liabilities to assume✓ Correct answer
- BThe buyer automatically assumes all liabilities of the target
- CAll liabilities transfer by operation of law
- DThe target's liabilities are extinguished upon closing
Explanation
Why A — The buyer can selectively choose which liabilities to assume
One of the primary advantages of an asset purchase is that the buyer can cherry-pick specific assets to acquire and liabilities to assume, leaving unwanted liabilities with the seller. This selectivity provides the buyer with greater protection against unknown or contingent liabilities. However, certain liabilities such as environmental obligations and employee-related claims may still transfer under successor liability doctrines.
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