When merging companies, who owns the Assets and Liabilities?

Merging two businesses can bring fresh opportunities and greater scale, but it also raises complex legal questions. One of the most important is this: Who takes ownership of the assets and liabilities after the merger? Getting this wrong can lead to costly surprises, unresolved debt, or legal exposure down the line. This is why understanding how ownership is determined is key before signing on the dotted line.

What Happens to Assets and Liabilities in a Merger?

In a business merger, two or more companies combine to form one legal entity. During this process, both assets (such as property, equipment, intellectual property, and cash) and liabilities (such as loans, unpaid invoices, or legal obligations) need to be carefully accounted for.

Who ends up owning these depends largely on the structure of the merger:

• Share purchase: The buyer acquires the shares of the target company. In this case, the target’s assets and liabilities remain with the company, and the buyer inherits them as part of the business.
• Asset purchase: The buyer acquires only selected assets and assumes specified liabilities. Anything not listed in the agreement remains with the seller.

Each approach carries different implications for risk and control. That’s why due diligence, clear contractual terms, and legal advice are so important at every step.

Why Due Diligence Matters

Before merging companies, it’s essential to conduct thorough due diligence. This is the process of reviewing the other party’s financial records, contracts, debts, legal history, and other liabilities.

Due diligence helps uncover:

• Hidden debts or pending legal claims
• Undervalued or disputed assets
• Regulatory compliance issues
• Contractual obligations that may transfer with the business

Understanding what lies beneath the surface allows both parties to make informed decisions about how assets and liabilities should be handled and who should take ownership after the merger.

How to Allocate Ownership Clearly

The merger or acquisition agreement will set out who takes on which assets and liabilities. This can include:

• Specific assets to be transferred (e.g. client contracts, property, vehicles)
• Any liabilities to be assumed by the buyer
• Exclusions – what stays with the seller
• Indemnities – where one party agrees to cover specific losses after the merger

Clear drafting prevents future disputes and provides a safety net if complications arise post-merger.

Legal Advice When Merging Companies

When merging companies, legal input is central to a smooth transaction. Seeking legal advice enables you to:

• Identify risks early in the process
• Ensure the merger agreement is watertight
• Understand tax and regulatory implications
• Support negotiations and protect your interests throughout

Even well-matched businesses can run into issues if the legal structure isn’t robust. A professionally drafted agreement brings clarity, control, and confidence to everyone involved.

Speak to mlplaw’s Corporate Team

At mlplaw, our corporate team advises clients across all aspects of mergers and acquisitions, from due diligence and drafting to negotiation and completion. Whether you’re the buyer, seller or merging partner, we’ll ensure your interests are protected and your business is prepared for a successful future.

To speak to us about your plans for merging companies, call 0161 926 9969 or email corporate@mlplaw.co.uk.