Considerations in Buying and Selling a Business:
Asset Purchase vs. Stock Purchase
If you’re considering buying or selling a business, there are generally two ways to structure your deal. One is an asset purchase, and the other is a stock purchaser. In an asset purchase, the buyer purchases only certain assets of the company, such as real estate, equipment, inventory, and business names. By contrast, in a stock purchase, the buyer purchases the entire business by ac
quiring all of the stock of the company, thereby essentially stepping into the seller’s shoes. There are advantages and disadvantages to both types of structures, depending on the circumstances.
Buyers tend to favor an asset purchase because it allows them to pick and choose both the assets that they will acquire and the obligations and liabilities that they want to avoid. Sellers, on the other hand, typically favor a stock purchase because it generally allows them to walk away from future liabilities and obligations altogether. Other advantages of asset purchases are the ability to avoid problems created by minority shareholders who refuse to sell their stock and various other securities law concerns.
On the other hand, stock purchases are generally less complicated than assets purchases and consequently less expensive. Similarly, stock purchases typically minimize interruptions to the business, whereas asset purchases often necessitate re-titling of purchased assets in the name of the buyer, renegotiating contracts with third parties, and reapplying for new licenses and permits, all of which can be very burdensome. Finally, stock purchases make it easy for businesses to continue under the same name and with the same employees, particularly key employees.
Of course, no two businesses or transactions are exactly alike, so whether you structure your deal more like an asset purchase or a stock purchase should only be determined after carefully considering the unique aspects of the business and potential tax consequences, weighing the risks and benefits of both types of deal structures, and consulting with qualified professionals.
Rod Woodbury is the managing shareholder of Woodbury Law and can be reached at 702-933-0777 or at email@example.com.