When someone tells me they’re “buying a business,” my first question is always the same: buying what, exactly? The company’s ownership, or its assets? Those are two very different deals, and the difference isn’t a technicality. It changes who’s on the hook for old debts, whether an old lawsuit follows the buyer home, which approvals you need, how the deal is taxed, and — in Minnesota specifically — whether the non-compete you thought you were buying is worth anything. Here’s how I explain both structures to clients, and why the choice tends to change everything.
The two structures
Broadly, there are two ways to buy or sell an operating business.
Asset purchase. The buyer uses its own entity to buy specified assets of the target — equipment, inventory, contracts, customer relationships, intellectual property, real estate, goodwill. Just as important, the buyer assumes only the specified liabilities it agrees to take on. The seller’s legal entity stays behind, holding whatever the buyer didn’t purchase.
Equity purchase. The buyer buys the ownership interest in the entity itself — shares of stock in a business corporation governed by Minn. Stat. ch. 302A, or membership interests in a limited liability company governed by Minn. Stat. ch. 322C. Buy the entity and you get everything inside it: the assets, contracts, employees, and tax history — and the liabilities, known and unknown. The company keeps operating. Only its owners change.
Here’s the basic difference, and the one I make every client memorize:
- In an equity deal, liabilities generally come along for the ride. You bought the container and everything in it.
- In an asset deal, the buyer generally takes on only what it agrees, in writing, to assume.
Most of what follows comes back to that one distinction.
Successor liability: the big asset-deal caveat
Buyers like asset deals precisely because they can leave old liabilities behind. But “generally” is not “always.” The default Minnesota rule is that a corporation that purchases another corporation’s assets is not liable for the seller’s debts and liabilities — and the exceptions, though narrow, are real. The Minnesota Supreme Court has stated them as follows: a purchaser is not liable except (1) “where the purchaser expressly or impliedly agrees to assume such debts”; (2) “where the transaction amounts to a consolidation or merger of the corporation”; (3) “where the purchasing corporation is merely a continuation of the selling corporation”; or (4) “where the transaction is entered into fraudulently in order to escape liability for such debts.” Niccum v. Hydra Tool Corp., 438 N.W.2d 96, 98 (Minn. 1989) (quoting J.F. Anderson Lumber Co. v. Myers, 296 Minn. 33, 37-38, 206 N.W.2d 365, 368-69 (1973)).
Those are the familiar four: express or implied assumption, de facto merger, mere continuation, and a fraudulent transaction to escape liability. They’re the common-law baseline, and Minnesota courts haven’t been eager to expand them — in Niccum, the Court declined to adopt a broader “product line” theory. But one important qualification applies when the deal is structured as a statutory asset sale under Minnesota’s business-corporation act. That statute provides that a disposition of all or substantially all of a corporation’s property under Minn. Stat. § 302A.661 “is not considered to be a merger or a de facto merger,” and that the transferee “shall not be liable solely because it is deemed to be a continuation of the transferor.” Minn. Stat. § 302A.661, subd. 4. In that setting, two of the four common-law theories — de facto merger and mere continuation — are substantially curtailed by statute. The other two aren’t: a transferee is still “liable for the debts, obligations, and liabilities of the transferor only to the extent provided in the contract or agreement” (express or implied assumption), id., and a transaction structured to defraud creditors remains reachable (see the fraudulent-transfer discussion below). And the four-part common-law framework still governs asset deals that are not structured under § 302A.661.
I flag two wrinkles on every deal. The first is product liability: a company that buys a manufacturing line can face claims from people injured by products the predecessor built, and courts scrutinize whether the buyer is really a continuation of the old business. The second is environmental liability: contamination and cleanup obligations can attach to property and operations in ways that don’t always respect the neat line between asset and equity deals. If the target makes products or has touched contaminated ground, successor-liability diligence isn’t optional.
An asset structure reduces liability exposure. What protects the buyer is the assumed-liabilities schedule and the diligence behind it, not the label on the deal.
Corporate approvals and dissenters’ rights
Structure also decides whose sign-off you need.
Selling substantially all the assets of a Minnesota corporation. A sale, lease, or other disposition of all or substantially all of a corporation’s property, made outside the usual course of business, generally requires both board approval and approval by the shareholders — the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote. Minn. Stat. § 302A.661, subd. 2. (Dispositions in the ordinary course, or grants of security interests, don’t require shareholder approval. Id., subd. 1.)
Dissenters’ rights. When a Minnesota corporation takes certain major actions — including a qualifying sale of substantially all its assets — shareholders who object may have the right to dissent and demand that the corporation pay them the fair value of their shares in cash. Minn. Stat. §§ 302A.471 (rights of dissenting shareholders), 302A.473 (procedures for asserting dissenters’ rights). “Fair value” is measured immediately before the effective date of the corporate action, and if the parties can’t agree, a court determines it. That cuts both ways. A seller with a minority holdout can face an appraisal fight, and a buyer needs to know who has leverage before closing.
LLCs. For a Minnesota LLC, the mechanics are different. Under Minn. Stat. § 322C.0502, a member can transfer a transferable interest — essentially the right to receive distributions — but that transfer, by default, does not make the transferee a member or give the transferee any right to participate in managing the company. Turning an economic transfer into full ownership and control usually means complying with the operating agreement and getting the consent of the other members. In practice the operating agreement governs, which is why I read it before I do anything else (and why it gets its own article on this site).
The Minnesota non-compete ban — the piece most buyers miss
This is the part that surprises out-of-state buyers, and I think it’s the single most important structural point in this article. Effective July 1, 2023, Minnesota voids most employee non-compete agreements. The statute provides that “[a]ny covenant not to compete contained in a contract or agreement is void and unenforceable.” Minn. Stat. § 181.988, subd. 2(a). The ban isn’t retroactive — it applies to covenants entered on or after July 1, 2023 — but going forward, an ordinary employee non-compete signed in Minnesota is generally worthless.
Why should a business buyer care? Because much of what you pay for in a small business is goodwill — the expectation that customers, referral sources, and key people will keep doing business with the company after you own it. Buyers have traditionally protected that goodwill by leaning on the target’s non-compete agreements with its employees. In Minnesota, that protection has largely evaporated. A buyer generally cannot rely on the target’s ordinary employee non-competes to fence off the goodwill it just purchased, because those covenants are now largely void.
But the statute has an exception built for exactly this situation. A covenant not to compete is valid and enforceable if “the covenant not to compete is agreed upon during the sale of a business. The person selling the business and the partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time”. Minn. Stat. § 181.988, subd. 2(b)(1). A parallel exception lets owners agree to a non-compete in anticipation of dissolving a business. Id., subd. 2(b)(2).
Read that carefully. The whole section turns on this distinction:
- From ordinary employees: you generally can’t get an enforceable non-compete. Those are void.
- From the selling owners: you generally can, within the sale-of-business exception — a reasonable, geographically limited, time-limited covenant tied to the sale.
Say a buyer is purchasing a Twin Cities HVAC company whose value is mostly the two owner-technicians and their loyal service accounts. A non-compete signed by the rank-and-file installers is likely void — but a reasonable, time- and geography-limited non-compete from the two selling owners, written into the purchase agreement, can fit the exception. That’s where the buyer’s protection lives, and it’s where I draft it.
So the way a Minnesota deal protects goodwill has shifted. It’s now built primarily around the sellers’ covenants, negotiated into the purchase agreement, plus tools the statute does not treat as non-competes at all. The statute expressly excludes nondisclosure and trade-secret/confidentiality agreements, and nonsolicitation agreements — including agreements restricting the use of client or contact lists and the solicitation of the employer’s customers. Minn. Stat. § 181.988, subd. 1. Those tools are still available, and they carry more weight now than they used to. The statute also limits out-of-state choice-of-law and venue clauses for Minnesota employees and allows attorney fees to an employee enforcing rights under the section. Id., subd. 3. If goodwill and key people are part of what you’re buying, the enforceable protection has to come from the sellers, not the company’s employee paperwork.
Fraudulent-transfer risk
A different creditor problem can reach across either structure, but it bites hardest in asset deals where a struggling seller cashes out and leaves its creditors behind.
Minnesota has adopted the Uniform Voidable Transactions Act (formerly the Uniform Fraudulent Transfer Act), Minn. Stat. §§ 513.41 to 513.51. See Minn. Stat. § 513.51 (short title). In broad terms, the Act lets a creditor unwind a transfer a debtor makes with intent to hinder, delay, or defraud creditors, or that leaves the debtor unable to pay its debts. If a seller sells its assets, pockets the money, and stiffs its creditors, those creditors may be able to go after the transaction — and the buyer can get dragged in. For a buyer, the defenses include paying reasonably equivalent value and making sure the seller’s known creditors are accounted for before closing. A deal that looks like a way to shed creditors is asking for a lawsuit.
Bulk sales: a law you no longer have to worry about
For decades, buyers of a business’s inventory and equipment had to worry about “bulk sales” or “bulk transfer” laws — Article 6 of the Uniform Commercial Code — which required notifying the seller’s creditors before closing. Minnesota repealed its bulk-transfer law. The former Article 6 provisions in Minnesota’s UCC (Minn. Stat. §§ 336.6-101 to 336.6-111) were repealed in 1991. You don’t need to run a bulk-sales creditor notice to close a Minnesota asset deal. Creditor risk gets managed instead through fraudulent-transfer analysis, UCC lien searches under Article 9, successor-liability diligence, and a well-drafted purchase agreement. I still see out-of-state forms telling the parties to “comply with the bulk sales law” — ignore them. In Minnesota, that statute no longer exists.
Taxes, at a high level
Tax treatment is often the tug-of-war at the center of a structure negotiation. Buyers frequently prefer asset deals because they can get a stepped-up tax basis in the purchased assets (generating future depreciation and amortization deductions) and can choose which liabilities to assume. Sellers frequently prefer equity deals because they can often get a single level of tax and capital-gains treatment, instead of the potential double tax that can arise when a C corporation sells assets and then distributes the proceeds. That’s why price and structure get negotiated together.
One Minnesota-specific point on sales tax. A one-time sale of a business’s assets isn’t the same as a store selling its inventory, and Minnesota law recognizes that. Minn. Stat. § 297A.68, subd. 25 (“Sale of property used in a trade or business”) exempts certain sales of property used in a trade or business when the sale isn’t made in the normal course of the seller’s business of selling that kind of property and one of the statute’s specific conditions is met — for example, a sale of substantially all of the assets of a trade or business. The exemption has conditions and limits, so don’t assume it applies. Confirm the sales/use-tax treatment with a tax advisor before you close. None of this is tax advice; tax outcomes turn on entity type, the specific assets, and current law.
What do I actually do on these deals?
Deal structure isn’t paperwork you crank out at the end. It’s a decision that shapes risk and price from day one. On a Minnesota buy-side or sell-side engagement, my substantive work usually includes:
- Choosing the structure for the client’s liability tolerance and tax position — and telling it straight when the buyer’s ideal (asset) and the seller’s ideal (equity) collide.
- Drafting the assumed-liabilities schedule so the buyer takes exactly what it means to take, and not one dollar more.
- Diligence on recorded liens (UCC searches), litigation, tax exposure, and successor-liability risk — especially for manufacturers and anything touching real property.
- Building enforceable goodwill protection around the sellers’ covenants within the § 181.988 sale-of-business exception, plus confidentiality and nonsolicitation tools the statute still permits.
- Handling approvals and dissenters’ rights for corporations, and member-consent mechanics for LLCs.
- Closing mechanics — bills of sale, assignments, consents to assignment, escrow and holdback terms, and the funds flow.
I’ve watched the wrong structure turn a clean handoff into a fight a year later over a liability nobody meant to buy. Pick the structure on purpose, and draft it like the fight is coming.
Sources: Minn. Stat. ch. 302A (Minnesota Business Corporation Act), including § 302A.661, subd. 1 (board approval alone for dispositions in the usual and regular course of business and for security interests), subd. 2 (shareholder approval by the holders of a majority of the voting power of the shares entitled to vote for a disposition of all or substantially all property and assets not in the usual and regular course), and subd. 4 (transferee liable only to the extent provided in the agreement or by statute; not a merger or de facto merger; no liability solely as a continuation of the transferor); § 302A.471 (rights of dissenting shareholders, including a disposition requiring approval under § 302A.661, subd. 2); § 302A.473 (procedures; fair value measured immediately before the effective date of the corporate action; court determination on petition). Minn. Stat. ch. 322C (Minnesota Revised Uniform Limited Liability Company Act), including § 322C.0502 (a transfer of a transferable interest does not entitle the transferee to participate in management; transferee’s right to distributions). Minn. Stat. § 181.988, subd. 1 (definition of covenant not to compete; nondisclosure, trade-secret, and nonsolicitation exclusions), subd. 2(a) (covenants void and unenforceable), 2(b)(1) (sale-of-business exception), 2(b)(2) (dissolution exception), 2(d) (attorney fees), subd. 3 (choice of law and venue; attorney fees); Laws 2023, ch. 53, art. 6, § 1 (effective July 1, 2023, for contracts and agreements entered into on or after that date). Minn. Stat. §§ 513.41 to 513.51 (Uniform Voidable Transactions Act; § 513.51, short title). Former Minn. Stat. §§ 336.6-101 to 336.6-111 (repealed, 1991 c 171 art 2 s 4). Minn. Stat. § 297A.68, subd. 25 (sale of property used in a trade or business, including paragraph (a)(6), a sale of substantially all of the assets of a trade or business). All from the Minnesota Office of the Revisor of Statutes, 2025 Minnesota Statutes and published session laws (October 1, 2026). Case: Niccum v. Hydra Tool Corp., 438 N.W.2d 96, 98 (Minn. 1989) (quoting J.F. Anderson Lumber Co. v. Myers, 296 Minn. 33, 37–38, 206 N.W.2d 365, 368–69 (1973)) (the four exceptions to the non-liability rule), 100 (declining to adopt the product-line exception) (Caselaw Access Project).
Attorney advertising. This article is general information about Minnesota business law, not legal or tax advice, and reading it does not create an attorney-client relationship. Every transaction is different; outcomes depend on the specific facts and governing law, and no result is guaranteed. For advice about your own purchase or sale, consult a licensed attorney and a qualified tax advisor.
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