Business Purchases and Sales – Stock vs. Asset Sales
There are two primary ways that a business can be acquired – through the purchase of all of the stock (or other equity interests) of a business, or through the purchase of the assets of a business. This blog posting briefly describes the differences in each of these approaches, but does not cover all aspects that should be considered. In all cases, if you are considering a business purchase, you should consult with both a business lawyer and a CPA.
Acquisition of a Business through a Stock Purchase
One way in which a business can be acquired is through the purchase of all of the outstanding shares of the business.
The benefits of a share purchase are:
- It is relatively simple, and you will own all assets, including intangible assets, such as contract rights
- Having solid, long-term contracts with vendors and clients may be extremely beneficial
- Most contracts that do not have “change in control provisions” will not need to be assigned. All contracts, however, should be examined for such provisions, as those with “change in control” provisions may require the approval of the other contracting party in order to continue in effect
- You may succeed to certain favorable tax benefits
- Benefits, such as government licenses, will usually automatically continue
- The legal structure for the company will already be in place
The potential disadvantages of a share purchase are:
- There may be unknown liabilities that could exist, such as those for contract disputes, employment matters, or tax matters, which could substantially decrease the value of the company
- There may be certain obligations that you would rather not have; such as unfavorable contracts
- You may wish not to retain certain workers, and thus the business being purchased may have obligations or liabilities relating to termination (and potentially lawsuits arising as a result)
The potential advantages of asset acquisitions are:
- You may be able to “cherry pick” the assets that you want, and avoid paying for assets that you do not want
- If employees are going to be terminated, this expense will be at the cost of the selling company
- There may potentially be unknown liabilities, which would stay with the owner
The potential disadvantages of an asset acquisitions are:
- You may not be able to keep key contracts (or enter into new contracts on favorable terms)
- You may need to form a new entity, and obtain new licenses and other matters that may or may not be easy to do
- It may be more difficult or time-consuming to identify assets.
How We Help
In the purchase or sale of a business, we advise buyers and sellers concerning the best transaction structure after we know about the goals and objectives to be achieved. We help conduct appropriate legal due diligence, prepare all transaction documentation, negotiate the terms and conditions, and take post-closing actions necessary to finalize the sale or acquisition.
Please call us to learn more about how we can help you.