When making a business acquisition, one of the key factors to be considered is whether the transaction will be an asset purchase or stock purchase. This may be difficult to agree upon because the buyer and seller benefit from opposing structures. In general, buyers prefer to purchase assets, and sellers prefer to sell stock.
Assets vs. Stock – What’s the Difference?
An asset transaction is the purchase of individual assets and liabilities of a business; whereas a stock transaction is the purchase of the shares of a corporation. If the entity involved is a sole proprietorship, partnership, or a limited liability company (“LLC”), a stock transaction is not an option because these entity types do not issue stock. As an alternative, owners of these entity types can sell their partnership or membership interests.
What should be considered?
While there are many factors to be considered when structuring a transaction, the tax implications and the assumption of potential liabilities are typically the primary concerns. Each set of circumstances present different issues that may positively or negatively impact the parties involved and influence the structure of the transaction. It is helpful to look at the transaction from the perspective of the seller and buyer in each case.
Stock Purchases
Seller’s Perspective | Buyer’s Perspective |
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Asset Purchase
Seller’s Perspective | Buyer’s Perspective |
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In addition to the advantages and disadvantages above, there are other factors to consider. For example, asset sales are typically less complicated from a securities law perspective because the parties are generally not required to comply with state and federal securities laws. If the selling company is closely-held with few shareholders, a stock sale could be less complicated. The company’s structure, customer contracts, and the respective industry can also influence whether a stock sale or an asset sale is the best option.
Since every sale involves a unique set of circumstances, it is important to diligently evaluate each transaction to determine the appropriate structure. Early in the process, both parties should consult with their business advisors, including legal counsels and accounting professionals, to fully understand the options that will yield the best result.