How a Mergers & Acquisitions Attorney Handles Dispositions in Deals

In an asset sale, the corporation sells specific assets and liabilities remain with the seller unless explicitly assumed by the buyer. In a stock sale, the buyer acquires the entire entity, including all liabilities, and the seller typically retains residual exposure through indemnification and escrow arrangements. New York courts evaluate whether a sale qualifies as a true asset disposition or a disguised stock transaction by examining the substance of the transaction and the parties' intent, not merely the label applied in the documents. Courts in the Southern District of New York and state trial courts have emphasized that incomplete schedules of assumed liabilities or ambiguous carve-outs in purchase agreements frequently lead to post-closing disputes over which party bears the cost of undisclosed environmental remediation or employee claims. Counsel must ensure that all material liabilities are identified, scheduled, and either assumed or explicitly retained before closing because delayed discovery of omitted liabilities can trigger indemnification claims or regulatory enforcement actions months or years after the transaction closes.

The choice of disposition structure determines whether the seller recognizes gain on a capital or ordinary income basis, whether the buyer receives a stepped-up basis in assets, and whether the transaction qualifies for deferral treatment under Section 368 or other provisions of the Internal Revenue Code. A mergers and acquisitions attorney coordinates with tax counsel to model the after-tax proceeds of each structure and identify opportunities to defer or reduce tax liability through installment sales, earn-out arrangements, or tax-free reorganizations where applicable. Structuring errors, such as failing to qualify a transaction as a reorganization when one was intended, can result in unexpected tax exposure that materially reduces the net proceeds to shareholders.

Dispositions involving hospital systems or health care facilities trigger specialized regulatory scrutiny, including state health department review, certificate-of-need requirements in certain jurisdictions, and analysis of competitive effects under federal antitrust law. Hospital mergers and acquisitions often require coordination with state attorneys general, CMS (Centers for Medicare and Medicaid Services), and state insurance commissioners to ensure the transaction does not harm patient access or compromise financial stability. Counsel must ensure that service continuity obligations, staff retention commitments, and charity care requirements are clearly allocated between the seller and buyer in the purchase agreement.

Before closing, counsel verifies that all third-party consents have been obtained (customer contracts, supplier agreements, financing arrangements, and landlord approvals), that representations and warranties are supported by schedules and disclosure documents, and that material contracts have been reviewed for change-of-control provisions. A disposition often triggers notice obligations to employees, customers, and government agencies; counsel ensures these notices are timely and accurate to avoid claims of bad faith or breach of fiduciary duty. Incomplete or delayed notice to affected parties can create litigation risk or regulatory exposure after the transaction closes.

Some dispositions include contingent consideration (earn-outs) tied to post-closing revenue, earnings, or operational targets, which defer a portion of the purchase price and create ongoing disputes over calculation methodology and the buyer's obligation to operate the disposed assets in a manner that achieves the targets. Counsel drafts earn-out provisions with detailed definitions of calculation metrics, audit rights, and dispute resolution procedures to minimize post-closing conflict. Earn-outs also create tax complexity because contingent consideration may not be treated as received until earned and paid, deferring the seller's tax recognition of gain.

Before engaging in a disposition, corporate counsel should evaluate whether all material liabilities have been identified and quantified, whether regulatory approvals are likely to be obtained within the target timeline, and whether the corporation has documented its decision-making process and business rationale for the transaction. Formalizing the corporation's internal approvals (board resolutions, shareholder votes where required) and conducting preliminary due diligence on tax and environmental matters early in the process helps avoid surprises that delay closing or reduce the purchase price. Counsel should also establish a document retention protocol to preserve evidence of pre-closing representations and post-closing performance, as these records often become critical in indemnification disputes or regulatory investigations months after the transaction closes.