When buying a business, both the buyer and seller must agree upon which form the acquisition should take; either a stock purchase, or asset purchase. There are many legal and tax considerations to be analyzed when making this decision, one of which being the assumption of liabilities from the business, as previously operated by the seller. The general rule under an asset purchase structure is that the buyer becomes liable only for those pre-closing liabilities arising from the operation of the business which the buyer expressly elects to assume in the asset purchase agreement. Those liabilities that are not expressly assumed by the buyer continue to reside with the seller. One very important, and often overlooked, exception to this general rule in Pennsylvania is the bulk sales laws with respect to all Pennsylvania state taxes, including corporate taxes, personal income tax withholding, and sales and use tax (collectively "Taxes").

In accordance with Pennsylvania bulk sales laws, every corporation, joint-stock association, limited partnership, and/or company, including limited liability companies, which sells or transfers 51% or more of any category of its assets must comply with the bulk sales laws under 43 Pa.C.S.A. 788.3, 69 Pa.C.S.A. 529, and 72 Pa.C.S.A. 1403(a), 7240, 7321.1 (collectively the "Bulk Sales Transfers Laws"). It is important to note that the bulk sales laws are interpreted disjunctively with respect to any category of assets. For example, a corporation may own real estate, and that real estate may constitute less than 51% of the corporation's total assets; however, the sale of 51% or more of all real estate owned by the corporation would require the buyer and seller to comply with Bulk Sales Transfer Laws. Failure to comply may result in the buyer assuming joint liability for any of the seller's Tax liabilities that are accruing and unpaid as of the date of the sale. These Taxes need not be assessed as of the closing date, but the mere obligation of the seller will give rise to buyer's liability.

With respect to the Bulk Sales Transfer Laws, the burden falls squarely on the buyer to force the seller to comply in order for the buyer to be exonerated from the seller's Tax liabilities. To our knowledge, there is no penalty on the seller for failure to comply with Pennsylvania Bulk Sales Transfer Laws. Failure of the parties to comply with the Bulk Sales Transfer Laws does not invalidate the sale of assets, but may result in the buyer becoming jointly liable for any unpaid Taxes owed by, or arising out of, the business's operations prior to the closing date.

In order to comply with the Bulk Sales Transfer Laws and prevent the Tax liability from being assumed by the buyer, notice of the transaction must be provided to both the Pennsylvania Department of Revenue and the Pennsylvania Department of Labor and Industry. The seller must apply for, and receive a tax clearance certificate indicating that all Taxes arising out of seller's operation of the business have been paid to the Commonwealth of Pennsylvania.

In a Pennsylvania Bulk Sales compliance situation, either party may provide notice of the sale to the Pennsylvania Department of Revenue at least 10 days prior to closing. Again, the buyer must take an active role in either delivering this notice on their own or confirming that the seller has complied with this notice requirement. It is always prudent to order a tax lien certificate to see if any Pennsylvania tax liens are in place. However, it is important to note that the buyer may also be liable for any Taxes that are accruing and unpaid as of the date of closing, but not yet liened.