Commercial Insurance Blog

When acquiring another business there are several risk and insurance issues that both the buyer and seller need to address.  Companies are separate legal entities, and insurance policies are legal contracts.  Getting the details right is important, and it’s always best to alert your broker early in the process.

Here are some of the immediate questions your insurance adviser will need to know:

• Will the acquired business be absorbed entirely by the buyer, or will it exist in its own separate and legal form?
• Is the acquisition for stock (assets and liabilities) or just an asset purchase (better for risk issues – no liabilities come with the deal)?
  
• What is the acquired company name and website (if any)?  Research on what you’re buying is important to understand what kinds of new risks your business may face.

Also, will company personnel coming over be active in the new combined operation?  Will they be retained in an advisory capacity only, with complete freedom to come and go without supervision? Will they be W-2 employees, or could they be classified as subcontractors?  The latter question should always be addressed with competent professional counsel.

Property-related questions include:  

* Will you occupy the same space as the seller was in yesterday?
* What are building construction details?
* Construction – frame, masonry, fire-resistant, and year built
* What are neighboring tenants doing if multiple-use space?
* Fire Protection – Are there alarms? Sprinklers? How’s the town’s fire department rated?
* Size – square footage of any new space to be occupied is often a rating factor

Workers Compensation insurance requires disclosure to a state board (and to the insurance company) regarding buyer and seller, corporate ownership (including officers names, stock ownership if applicable), and other legal details.  Plus underwriting changes including payroll breakdown by department or other categories are important items to share.

Disclosure of all this is in the state's form (MA ERM-14) outlining buyer and seller information so that the experience of the acquired entity can be combined with the acquiring entity’s experience. 

This is just a start. To address what new risks you bring to a business deal more fully, involve your risk adviser early in the process.  Discuss your personal business plans with a Gordon Atlantic Insurance professional by calling toll free 800-649-3252.  Wish to type versus talk?  Use the form at the top left of this blog for a return phone call or email.