A buyer purchases the assets of a Rockville restaurant. The purchase agreement is careful. It lists the assets being acquired, states plainly that the buyer is not assuming any liability of the seller other than a handful of scheduled contracts, and closes without incident. Eight months later, a notice arrives from the Comptroller of Maryland assessing the buyer for years of the seller’s unpaid sales and use tax, plus interest and penalties. The seller has spent the money and is not answering calls.

That scenario is not hypothetical, and it is not the result of bad drafting. It is what happens when a well-drafted asset purchase agreement runs into a set of Maryland statutes and doctrines that operate independently of what the parties agreed between themselves. A contract can allocate risk between a buyer and a seller. It cannot, by itself, tell the State of Maryland or a third-party creditor whom they may pursue.

This guide explains successor liability for Maryland asset buyers: the general rule and why it favors you, the four exceptions that can undo it, Maryland’s still-in-force bulk transfer statute, the tax provisions that create personal exposure, how fraudulent conveyance law fits in, the other liability categories worth diligence, and the pre-closing steps and agreement terms that actually protect a buyer. If you are earlier in the process, our guides on how to buy a business in Maryland and on asset sale versus stock sale cover the surrounding decisions.

Start with the rule, because it is genuinely protective. Under Maryland law, a corporation that acquires the assets of another corporation is generally not liable for the debts and liabilities of the predecessor corporation. That principle is stated in Baltimore Luggage Co. v. Holtzman, 80 Md. App. 282, 290 (1989), and it has been reaffirmed consistently since.

This is the entire reason small-business acquisitions are usually structured as asset purchases rather than as purchases of stock or membership interests. When you buy the equity of a company, you buy the company with everything in it, known and unknown: the lawsuits, the tax balances, the warranty claims, the disgruntled former employee whose claim has not been filed yet. When you buy assets, the general rule is that those obligations stay behind with the selling entity.

Maryland has also declined to expand the doctrine. In Nissen Corp. v. Miller, 323 Md. 613 (1991), the Supreme Court of Maryland was asked to adopt a “continuity of enterprise” theory as a fifth exception in products liability cases, an approach some other states had embraced. The Court rejected it and adhered to the traditional rule of successor nonliability with its four recognized exceptions, emphasizing that tort liability in Maryland requires fault. For an asset buyer, that refusal to broaden the doctrine is meaningful protection.

Maryland recognizes four exceptions to the general rule. A successor becomes liable for the predecessor’s debts and obligations when:

1. There is an express or implied assumption of liability. This is the parties’ own agreement doing the work. It is consistent with Md. Code, Corps. and Ass’ns Section 3-115(c)(1), which provides that, in a statutory transfer of assets governed by that subtitle, the successor is liable for the transferor’s debts and obligations to the extent provided in an agreement between the transferor and the successor. More generally, an asset buyer can assume liabilities expressly in the purchase agreement or, depending on the facts, through conduct supporting an implied assumption. Conduct after closing, such as paying certain of the seller’s obligations as a matter of course, can be evidence of that implied assumption.
2. The transaction amounts to a consolidation or merger. Often called a de facto merger. Courts look past the label on the documents to whether the substance of what happened was a combination of the two enterprises rather than a purchase of assets.
3. The purchasing corporation is a mere continuation of the selling corporation. The most litigated of the four, and the subject of the next section.
4. The transaction was entered into fraudulently to escape liability for debts. This overlaps with, and is often analyzed alongside, the Maryland Uniform Fraudulent Conveyance Act discussed below.

The mere continuation exception exists because, as Baltimore Luggage put it, if a corporation goes through a mere change in form without a significant change in substance, it should not be allowed to escape liability. The concern is the seller who sells to himself under a new name and leaves the creditors behind.

In Martin v. TWP Enterprises, Inc., 227 Md. App. 33 (2016), the Appellate Court of Maryland gathered the Maryland case law and identified five indicia of continuation:

1. Any change in ownership and management
2. The continued existence of the selling corporation
3. The adequacy of consideration
4. The transfer of any “instrumental” employees from the predecessor to the successor
5. The purpose of the asset sale

Two points from that body of law should reassure a legitimate arm’s-length buyer. First, Martin noted that only three Maryland cases had addressed the mere continuation exception, and in none of them did the court conclude that the successor was a mere continuation of the predecessor. Maryland applies the exception stringently. Second, Maryland focuses on continuation of the corporate entity rather than continuation of the business operation, a distinction the Court drew in Nissen Corp. v. Miller, 323 Md. 613, 620 (1991). Buying a business and continuing to run it the same way, from the same location, serving the same customers, is not by itself a mere continuation. Something closer to identity between the old and new owners is required.

Here is the point that catches out-of-state counsel and national checklists. Most states repealed UCC Article 6 on the Uniform Law Commission’s recommendation, reasoning that Article 9 lien searches and modern credit reporting had made bulk sales notice obsolete. Maryland did not. Article 6 remains on the books at Commercial Law Title 6, Sections 6-101 through 6-111.

What counts as a bulk transfer. Under Section 6-102, a bulk transfer is any transfer in bulk, and not in the ordinary course of the transferor’s business, of a major part of the materials, supplies, merchandise, or other inventory of a covered enterprise. A transfer of a substantial part of the equipment counts as a bulk transfer if it is made in connection with a bulk transfer of inventory, but not otherwise.

Which businesses are covered. This is the key scoping limit. The enterprises subject to the title are those whose principal business is the sale of merchandise from stock, including those who manufacture what they sell, restaurants, and all vendors and sellers of alcoholic beverages, regardless of the form in which the beverages are sold and regardless of whether the sale is wholesale or retail. A professional services firm, a consultancy, or a staffing agency generally falls outside Article 6. A restaurant, a liquor store, a retail shop, or a small manufacturer generally falls inside it.

What compliance requires. Sections 6-104 and 6-107 require the transferee to obtain a schedule of the property and a list of the seller’s creditors, and set out the required form and delivery of the notice. Under Section 6-105, a covered transfer other than an auction sale is ineffective against any creditor of the transferor unless, at least ten days before the transferee takes possession of the goods or pays for them, whichever happens first, the transferee gives the required notice.

What noncompliance means. The sanction is that the transfer is ineffective as to the seller’s creditors, who may then levy, attach, or garnish the goods transferred to the buyer. Section 6-111 imposes a six-month limitation on a creditor’s ability to bring an action or levy to attack a bulk transfer, with a longer period where the transfer was concealed. As the next section explains, that six-month period does not do what buyers hope when the creditor is the Comptroller.

Maryland layers a tax obligation on top of the bulk transfer rules, and it is the provision most likely to hurt an unprepared buyer.

The notice obligation. Under Md. Code, Tax-Gen. Section 11-505, a transferee or auctioneer in a bulk transfer, as defined in Commercial Law Section 6-102, must mail the notice to creditors required by Commercial Law Sections 6-107 and 6-108 to the Comptroller. The statute is emphatic that this applies whether or not the transferor lists the Comptroller as a creditor, and whether or not the transferee knows the transferor owes any sales and use tax. If the Comptroller finds tax is owed, it files a claim at the address stated in the notice, and the transferee must withhold that amount from distribution to the transferor.

The consequence of skipping it. Under Section 13-802, if the transferee fails to file the notice required by Section 11-505 or fails to retain consideration equal to the Comptroller’s claim, then the consideration in the bulk transfer is subject to a first priority right and lien for the sales and use tax the transferor owes, and the transferee is personally liable for the sales and use tax, interest, and penalties that the transferor owes the State.

The obligation is inexpensive to satisfy and expensive to skip. Sending the required notice is the specific statutory protection for predecessor sales-and-use-tax claims; if the Comptroller determines that the seller owes sales and use tax, it files a claim at the address stated in the notice, and the buyer must withhold the claimed amount from funds otherwise distributable to the seller. If no claim is received, the buyer should not treat the process as a comprehensive confirmation that the seller is current on every tax account, because Section 11-505 addresses the bulk-transfer procedure for sales and use tax and does not serve as a blanket clearance of all Maryland tax obligations. Buyers should separately investigate the seller’s other Maryland tax accounts, including withholding tax and, where applicable, admissions and amusement tax, by reviewing returns, payment records, account transcripts, lien searches, and other documentation supplied by the seller and by contacting the Comptroller of Maryland with the seller’s authorization where appropriate. If the diligence turns up an unresolved balance, our guides on unfiled returns and back taxes and tax debt and collections defense explain the resolution paths.

The fourth successor liability exception, a transaction entered into fraudulently to escape debts, connects to a separate statutory scheme. Maryland is one of the few states that has retained the older Uniform Fraudulent Conveyance Act rather than adopting the more recent Uniform Voidable Transactions Act. It is codified at Commercial Law Title 15, Subtitle 2, Sections 15-201 through 15-214.

Two routes matter to an asset buyer:

• Actual fraud. Under Section 15-207, a conveyance made with actual intent to hinder, delay, or defraud present or future creditors is fraudulent as to both present and future creditors.
• Constructive fraud, with no bad intent required. This is the one buyers underestimate. Under Section 15-204, every conveyance made by a person who is or will be rendered insolvent by it is fraudulent as to creditors without regard to actual intent, if the conveyance is made without fair consideration. Section 15-205 reaches conveyances that leave the seller with unreasonably small capital for a business it is engaged in or about to engage in, and Section 15-206 reaches conveyances by a person who intends or believes it will incur debts beyond its ability to pay.

Read those together and the message to a buyer is clear. If you buy a struggling company’s assets at a bargain price, and the seller is insolvent or becomes insolvent as a result, the seller’s creditors have a statutory path to unwind or reach that transfer even though nobody intended anything improper. Fair consideration is the defense. Paying a real price, supported by a valuation you can produce later, protects the deal on this front and on the mere continuation front at the same time.

Successor liability doctrine and the bulk transfer statutes are the framework, but several specific liability categories deserve their own attention in a Maryland acquisition.

• Unemployment insurance successor exposure. Maryland generally treats an employer that acquires all or part of another employer’s assets, business, organization, trade, or workforce as a successor employer. The rate consequences depend on whether the successor was already an employing unit, whether the parties share ownership, management, or control, how much of the business was transferred, and whether the predecessor remains in business. Even where there is no common ownership or control, an appropriate portion of the predecessor’s payroll and benefit-charge experience may affect the successor’s future contribution rate. If the predecessor does not remain in business after the transfer, the successor may also become liable for the predecessor’s unpaid unemployment contributions, interest, penalties, and administrative fees. A successor seeking a lower earned rate based on the transfer generally must report the transfer and apply within 120 days. The Division polices rate manipulation actively under the heading of SUTA dumping, and a Business Transfer Report is required when workforce or payroll moves between entities.
• Secured creditors and liens. As a general rule, a perfected security interest continues in collateral after a sale or other disposition unless the secured party authorized the disposition free of the security interest or another UCC rule allows the buyer to take free. In an acquisition outside the seller’s ordinary course of business, a buyer ordinarily should not assume that existing liens disappear at closing. UCC Article 9 searches at SDAT, plus payoff letters, secured-party authorizations, and termination statements at closing are the answer. This is a mechanical step and it is the one most often rushed.
• Payroll and trust fund taxes. Unpaid federal employment taxes create their own exposure paths and can reach individuals who become responsible persons. Our guide to the Trust Fund Recovery Penalty explains that framework.
• Worker classification exposure. If the seller treated workers as contractors who should have been employees, the assessment history and the operational practice both matter. See our guide on worker misclassification in Maryland.
• Environmental obligations. These can attach to real property and to operations, and they follow a different logic than contract debts. Any deal involving owned real estate, underground storage tanks, dry cleaning, automotive work, or manufacturing warrants environmental diligence.
• Product liability. Claims arising from goods the seller manufactured before closing are analyzed under the four exceptions, and Nissen Corp. v. Miller is the reason Maryland has not expanded that analysis through a continuity of enterprise theory.
• Assumed contracts and leases. Assignment usually requires landlord and counterparty consent, and an assumed contract brings its accrued breaches with it. Our post on commercial lease review in Maryland covers the lease side.
• Entity standing. If the selling entity is not in good standing with SDAT, its ability to convey clean title and to sue or be sued can be affected. See our guide on a Maryland business not in good standing.

Almost everything that protects an asset buyer has to happen before closing. Once the seller has the money, your remedies are contractual and your counterparty may be judgment-proof.

• Investigate all Maryland tax accounts. Obtain the seller’s filed returns, payment records, account transcripts, or other available evidence for each applicable state tax account, and require the seller to authorize appropriate communications with the Comptroller. Treat the Section 11-505 bulk-transfer notice as the specific statutory protection for predecessor sales-and-use-tax claims, not as a blanket clearance of every state tax account.
• Determine whether Article 6 applies based on the seller’s principal business, and if it does, obtain the schedule of property and creditor list and calendar the ten-day notice deadline against the earlier of possession or payment.
• Send the Comptroller notice under Section 11-505 whether or not the seller lists the Comptroller as a creditor and whether or not you believe tax is owed. The statute removes both of those as excuses.
• Run UCC Article 9 lien searches at SDAT, plus federal and state tax lien searches, judgment searches, and litigation searches in the counties where the business operates.
• Confirm good standing for the selling entity through Maryland Business Express and the Maryland Department of Assessments and Taxation.
• Review payroll and employment records, including the unemployment insurance account history and rate, worker classification practice, wage claims, and benefit plan obligations.
• Document the valuation. Keep the financial statements, the appraisal or broker opinion, and the negotiation record that show how the price was determined.
• Verify seller solvency at the time of the transfer, which bears directly on the constructive fraudulent conveyance analysis.
• Check licenses and permits, which frequently do not transfer and may require the buyer to apply fresh, particularly for alcohol, food service, and regulated trades.

Be clear about the limits first. The purchase agreement governs the relationship between buyer and seller. It does not bind the Comptroller, a secured creditor, or a tort claimant. An indemnity does not stop the State from assessing you under Section 13-802; it gives you a claim against the seller after the State has already collected. That distinction is why compliance comes first and contract protection comes second.

With that said, the agreement is where a buyer builds its recovery path:

• An explicit liabilities schedule. List the assumed liabilities specifically and state that all others are excluded. Vague assumption language invites the first exception.
• Representations and warranties covering tax filings and payments across all tax types, absence of undisclosed liabilities, litigation, liens, employment matters, benefit plans, environmental conditions, and compliance with law.
• A bulk transfer provision. Either comply and say so, or address the waiver and its consequences directly, with an indemnity sized to the risk. Silence is the worst option.
• Indemnification with realistic terms. Survival periods long enough to cover the tax assessment window, a cap that reflects the actual exposure rather than a token figure, and carve-outs from the cap for taxes and fraud.
• A holdback or escrow. The single most effective protection, because it keeps money in reach. Size it against the identified risk and release it on a schedule tied to the survival periods.
• Seller covenants to file final returns, close out tax accounts, satisfy scheduled liens, and cooperate with post-closing inquiries.
• Personal guarantees from the seller’s owners where the selling entity will be dissolved or drained after closing. Without one, your indemnity may be against an empty shell.

Drafting these provisions well is the core of contract negotiation and drafting work in an acquisition, and our post on common contract mistakes covers the recurring drafting failures. If a dispute does arise after closing, the framework shifts to the contract, which our guide on breach of contract in Maryland and Pennsylvania addresses.

• Assuming an asset purchase is automatically clean. The general rule helps, but four exceptions and several statutes operate independently of the deal structure.
• Relying on national guidance that says bulk sales laws are gone. Maryland is an exception. Article 6 is still in Commercial Law Title 6.
• Skipping the Comptroller notice. Section 11-505 applies whether or not you know tax is owed, and Section 13-802 makes the consequence personal.
• Counting on the six-month bulk transfer limitations period. Mr. Pizza II confirms it does not bar the Comptroller from pursuing the Tax-General remedy.
• Paying a bargain price for a distressed seller’s assets. Without fair consideration, the constructive fraudulent conveyance provisions apply regardless of intent.
• Letting the seller’s owner take equity in the buyer. It is a live factor in both the de facto merger and mere continuation analyses.
• Taking possession or paying a deposit early. The ten-day notice clock runs from the earlier of possession or payment, not from closing.
• Treating the indemnity as the whole answer. An indemnity against a dissolved entity with no assets is a piece of paper. Escrow, holdbacks, and owner guarantees are what make it real.
• Rushing the lien searches. Existing liens may continue in the transferred assets unless released, the secured party authorizes a disposition free of the lien, or another applicable rule allows the buyer to take free. The leverage to require payoffs and obtain termination statements disappears once the money moves.

Successor liability is the doctrine under which the buyer of a business becomes responsible for the seller’s pre-existing debts and obligations, even in an asset purchase where the buyer did not agree to assume them. The Maryland baseline favors buyers. As the court put it in Baltimore Luggage Co. v. Holtzman, 80 Md. App. 282 (1989), a corporation that acquires the assets of another corporation is generally not liable for the debts and liabilities of the predecessor. That general rule is the entire reason most small-business deals are structured as asset purchases rather than stock or membership interest purchases. But the rule has exceptions, and Maryland layers separate statutory obligations on top of it, particularly for unpaid sales and use tax, so an asset purchase is not automatically a clean break.

Maryland recognizes four exceptions to the general rule of successor nonliability. A buyer can be held responsible for the seller’s obligations when there is an express or implied assumption of liability; when the transaction amounts to a consolidation or merger, often called a de facto merger; when the purchasing corporation is a mere continuation of the selling corporation; or when the transaction was entered into fraudulently to escape liability for debts. These come from Baltimore Luggage Co. v. Holtzman, 80 Md. App. 282, 290 (1989), and have been applied repeatedly since. The first exception is consistent with Md. Code, Corps. and Ass’ns Section 3-115(c)(1), which provides that, in a statutory transfer of assets governed by that subtitle, the successor is liable for the transferor’s debts and obligations to the extent provided in an agreement between the transferor and the successor. More generally, an asset buyer can assume liabilities expressly in the purchase agreement or through conduct supporting an implied assumption.

Less likely than buyers fear, but the analysis is fact-intensive. In Martin v. TWP Enterprises, Inc., 227 Md. App. 33 (2016), the Appellate Court of Maryland observed that only three Maryland cases had addressed the mere continuation exception, and in none of them did the court conclude the successor was a mere continuation of the predecessor. Martin drew five indicia of continuation from that case law: any change in ownership and management, the continued existence of the selling corporation, the adequacy of consideration, the transfer of instrumental employees from the predecessor to the successor, and the purpose of the asset sale. Maryland also focuses on continuation of the corporate entity rather than continuation of the business operation, a distinction the Supreme Court of Maryland drew in Nissen Corp. v. Miller, 323 Md. 613 (1991). Paying fair value in an arm’s-length deal to a seller that continues to exist is the strongest protection.

Yes, and this surprises many buyers and even out-of-state counsel. Most states repealed UCC Article 6 decades ago on the recommendation of the Uniform Law Commission, but Maryland retains it at Commercial Law Title 6, Sections 6-101 through 6-111. Under Section 6-102, a bulk transfer is a transfer in bulk and not in the ordinary course of the transferor’s business of a major part of the materials, supplies, merchandise, or other inventory of a covered enterprise, and a transfer of a substantial part of the equipment counts if made in connection with a bulk transfer of inventory. The covered enterprises are those whose principal business is the sale of merchandise from stock, including manufacturers who sell what they make, restaurants, and vendors and sellers of alcoholic beverages. Service businesses generally fall outside it. Under Section 6-105, a covered transfer is ineffective against any creditor of the transferor unless the transferee gives the required notice at least ten days before taking possession of the goods or paying for them, whichever happens first.

Yes, and this is the single largest trap in Maryland asset deals. Under Md. Code, Tax-Gen. Section 11-505, the transferee in a bulk transfer must mail the notice to creditors to the Comptroller, whether or not the seller lists the Comptroller as a creditor and whether or not the buyer knows any sales and use tax is owed. If the Comptroller finds tax is owed, it files a claim, and the buyer must withhold that amount from the money going to the seller. Under Section 13-802, if the buyer fails to file that notice or fails to retain consideration equal to the Comptroller’s claim, the consideration is subject to a first priority lien and the buyer is personally liable for the sales and use tax, interest, and penalties the seller owes the State. Personally liable is the operative phrase: the exposure is not capped at the value of the assets acquired.

Yes. In Mr. Pizza II, Inc. v. Comptroller of the Treasury (Md. Ct. Spec. App. 2001), a seller transferred all of its assets to the buyer in a bulk transfer, and no notice of the transfer was ever sent to the Comptroller. The seller owed the State roughly $24,900 in sales and use tax plus interest and penalty for a period stretching back several years. The Comptroller assessed the buyer as successor. The buyer argued that the six-month limitations period in Commercial Law Section 6-111 barred the assessment. The court disagreed, holding that Section 6-111 did not apply because the Comptroller was not attacking the bulk transfer itself but was instead pursuing the separate remedy in Tax-General Section 13-802. The court also confirmed that Section 13-802 makes the transferee personally liable rather than limiting liability to the property acquired in the transfer.

Beyond the sales and use tax exposure, several categories deserve diligence. Unemployment insurance: Maryland generally treats an employer acquiring another employer’s assets, business, organization, trade, or workforce as a successor employer. Even where there is no common ownership or control, an appropriate portion of the predecessor’s payroll and benefit-charge experience may affect the successor’s future rate. If the predecessor does not remain in business after the transfer, the successor may also become liable for its unpaid unemployment contributions, interest, penalties, and administrative fees. Existing liens may continue in the transferred assets unless they are released, the secured party authorizes a sale free of the lien, or another applicable rule allows the buyer to take free, so UCC searches, payoff letters, and termination statements matter. Environmental obligations can attach to real property. Product liability claims for goods the seller made before closing can implicate the four exceptions. Employment claims, unpaid wages, benefit plan obligations, and assumed contracts each carry their own analysis. Fraudulent conveyance exposure exists separately under the Maryland Uniform Fraudulent Conveyance Act.

Maryland is one of the few states that still uses the older Uniform Fraudulent Conveyance Act rather than the more recent Uniform Voidable Transactions Act. It is codified at Commercial Law Title 15, Subtitle 2, Sections 15-201 through 15-214. Two paths matter to a buyer. Under Section 15-207, a conveyance made with actual intent to hinder, delay, or defraud creditors is fraudulent. And under Sections 15-204 through 15-206, a conveyance can be constructively fraudulent without any bad intent when it is made without fair consideration and the seller is insolvent or rendered insolvent, is left with unreasonably small capital, or intends to incur debts beyond its ability to pay. The practical lesson is that paying fair value, documenting how the price was determined, and confirming the seller’s solvency are protective steps, not formalities.

Layer your protections rather than relying on any single one. Investigate all Maryland tax accounts by obtaining the seller’s returns, payment records, and account transcripts and requiring the seller to authorize appropriate Comptroller communications. Comply with the bulk transfer notice requirements where Article 6 applies, and send the Comptroller notice under Tax-General Section 11-505 regardless of whether the seller lists it as a creditor; treat that notice as the specific statutory protection for predecessor sales-and-use-tax claims, not as a blanket clearance of all state tax obligations. Run UCC Article 9 lien searches, judgment and litigation searches, and confirm the entity’s good standing with SDAT. Pay fair value and document the valuation. Then use the purchase agreement: a clear schedule of assumed and excluded liabilities, representations and warranties on taxes and undisclosed liabilities, an indemnity with a realistic survival period, and a holdback or escrow so there is money available if a claim surfaces after closing.

For any acquisition of an operating business, yes. Successor liability sits at the intersection of Maryland corporate law, the bulk transfer provisions of the Commercial Law Article, the Tax-General Article, fraudulent conveyance law, secured transactions, and contract drafting, and the protective steps are almost all pre-closing steps that cannot be recreated afterward. The notice to the Comptroller has to go out before the buyer takes possession or pays. The escrow has to be negotiated before the money moves. The lien searches have to be run while there is still leverage to require payoffs. A buyer who discovers a problem after closing is usually left suing a seller who has already spent the proceeds, which is why counsel earns its fee in the weeks before closing rather than the months after.