De Facto Merger – Definition

Cite this article as:"De Facto Merger – Definition," in The Business Professor, updated November 23, 2018, last accessed October 25, 2020,


De Facto Merger Definition

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 firm’s assets and/or voting stock by another company.

A Little More on What is a De Facto Merger

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 seller’s 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.

References for De Facto Merger

Academic Research on De Facto Merger

De Facto Mergers in Delaware: Hariton v. Arco Electronics, Inc., Folk III, E. L. (1963). Virginia Law Review, 1261-1296. This paper, however, emphasized the statutory merger as regards the amalgamation of the corporation as often being tedious because of the special protection assigned to it. This protection includes appraisal rights amongst others. However, this paper notes that in many cases, the court will have to invoke the idea of “de facto merger” in other to make protection of merger statuses readily available irrespective of the technical form of the transaction. Most times, corporations frame such transaction in the form of sales of an asset or as a medium of exchange of shares which in most cases, the problem of statutory merger can be avoided.

De Facto Merger, Federal Common Law, and Erie: Constitutional Issues in Successor Liability, Davis, W. B. (2008). Colum. Bus. L. Rev., 529. According to this paper, the De facto merger was explained I view of the federal common law and the Erie. In this paper, the constitutional issues in successor liability were also explained.

Do mergers and alliances influence European shipping and port competition?, Heaver, T., Meersman, H., Moglia, F., & Van de Voorde, E. (2000). Maritime Policy & Management, 27(4), 363-373. According to this research paper, in Europe, ports are faced with a closer integration in the shipping industries and the maritime. According to the agreement signed by the cooperation, several forms could be accepted and they include mergers and alliances among shipping lines. The involvement of shipping companies in terminal management, conferences and extending the interest in the transportation of the shipping industries was also explained in this paper. The paper, however, gave an overview of the various types of agreement and also study the consequences of these evolutions on market structures in which most shipping companies and ports operate.

The Appraisal Remedy for Dissenting Shareholders in Iowa and the De Facto Merger Doctrine: Rath v. Rath Packing Company, McDonough, T. J. (1966). Drake L. Rev., 16, 22. This paper explains the appraisal remedy for opposing shareholder in Iowa and the De facto merger doctrine. However, this study was aided by studying the Rath V. Rath packing company.

The Future of Corporate Federalism: State Competition and the New Trend Toward De Facto Federal Minimum Standards, Coffee Jr, J. C. (1986). Cardozo L. Rev., 8, 759. According to this paper, the future of the corporate federalism was explained also, the state competition and the new trend towards the de facto federal minimum standards were also discussed.

Of Equity, Continuation and the De Facto Merger Doctrine: Reflections on Mississippi Law and Successor Liability, Edwards, C. C. (1999). MiSS. CL REv., 20, 307. According to this paper, several vagaries as regards the “de facto merger” doctrine, the continuation theory and other ways in which a successor might take up the liabilities of other corporate entities were studied by scholars and courts in this research paper. After all these academic research works, just a little certainty was recorded amongst the corporate bodies that purchase another firm’s business. This uncertainty can, however, prevent or allow an unplanned assumption of the liabilities of that firm. According to this paper, one of the exceptions to the general rule of the non-liability is the mere continuation of the business test and the de facto merger doctrine. This paper, however, debates that some archaic cases from Mississippi possess the answer to a more suiting resolution of these problems.

Successor Liability in the corporate acquisitions-an examination of attempts to limit the use of the de facto merger doctrine, Dyer, D. P. (1981). J. Air L. & Com., 46, 483. This paper studies the successor liability in corporate acquisitions and a test was carried out to examine the attempt as regards reducing or limiting the use of the de facto merger doctrine.

Product Line Continuity and Successor Corporation Liability, Phillips, J. J. (1983). NYUL Rev., 58, 906. According to this academic research paper, the successor’s corporation liability, as well as the product line continuity, was explained and their relationship with the de facto merger doctrine was also discussed in this paper.

A case for federal chartering of corporations, Schwartz, D. E. (1975). Bus. Law., 31, 1125. This paper is a case study contains a case file for the federal chartering of the corporation. In this case file, the de facto merger was explained as a tool used by various companies and how this de facto merger doctrine has helped to improve and shape both the product and capital market of an economy.

Survival of Products Liability Claims in Assets Acquisitions, Heitland, A. R. (1978). Bus. Law., 34, 489. This research paper explains the survival of the product liability claims in an asset acquisition. That is, in this paper, the product liability as well as the problems facing it was well explained.

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