Liability for continuity of the company name

Liability for continuity of the company name concerns buyers of a trading company. This means that the acquirer is liable for the company’s debts if they continue to run the company.

Our law firm advises and supports companies on liability for continuity of the company name with:

• Checking the conditions of liability
• Advice on avoiding liability
• Design exemption of indemnity.

When will a company name be continued?

A continuation of the company name according to § 25 HGB means that company will be continued. The company name is the name of the company itself with which the business is conducted. The reason for the liability of the liabilities with a previous owner is that the name of the company will continue, and the creditor of the company can still contact the new owner. The new owner of the company has advantages in that it can easily continue to do business with existing customers. The legal interests protect the interests of creditors.

What is the meaning of liability?

According to legal regulation, the new owner of the trading company does not take the place of the old owner when liability is affected. Rather, the new owner is liable alongside the old owner. A creditor can enforce a claim against both the old and the new owners of the company. This creates the risk that the new owner, who has bought a company and continues to run it under the company’s name, is liable for old liabilities which he himself has not assumed. The old and new owners are jointly and severally liable. This means that the creditor can choose who is to be claimed. The old and new owners of the company can also be sued together.

The scope of liability is unlimited. The purchaser is generally liable with all of his assets. This liability therefore involves a special risk.

The transfer of liabilities is only possible if there is a trading transaction. This is the case when a trading company such as an German open partnership (OHG) or limited partnership is transferred. Even if the trading business of a registered merchant is acquired, there is the possibility of subsequent liability.

The counterpart to the additional liability is that the claims that the seller had against his debtors also pass to the new owner of the company. This transfer both liabilities and claims to the new owner.

How can additional liability be avoided?

Subsequent liability in accordance with Art. 25 of the German Commercial Code can be avoided if the purchaser makes a different agreement with the seller of the trading business. For the agreement to become effective against the creditors of the commercial transaction, the agreement must be entered in the commercial register and published. It is also sufficient if either the buyer or the seller informs his creditors that an agreement between the buyer and seller of the trading transaction has been made regarding the receivables and liabilities. In such a case, the creditor of the trading transaction cannot demand payment from the purchaser of a previously entered liability.

Another possibility is that the company’s name will not subsist. The name of the company may therefore no longer be used by the purchaser. Therefore, the letterhead, website and email address as well as other identifying marks of the trading business should also be changed. However, as soon as there appears to be continuity in trading, there is a possibility of liability for the old liabilities.

A lawyer specializing in commercial law should therefore evaluate and limit the options for subsequent liability before acquiring a commercial transaction.