What is a De Facto Merger?

A de facto merger is a transaction between two companies that is not structured as a merger but in effect has the same results. Generally, it arises during the acquisition of one firms assets and/or voting stock by another company.

How does a De Facto Merger Work?

The de facto merger doctrine empowers the courts to determine whether the statutory merger law applies to the situation. Generally, when any such transactions take place between two companies regarding acquisition of asset or voting stocks, the buyer company may enjoy all the benefits of a merger, but it may avoid the liabilities of the seller as a merger is not declared. The de facto doctrine prevents this and obligates the buyer company to assume the sellers liabilities. The doctrine was first adopted in Pennsylvania, since then courts in other states have modified it on their own terms or have rejected it altogether.