Buying a business – asset or stock sale?

There is a big difference between buying the assets of a business and buying the entire company in a stock sale.

In an asset sale, the buyer purchases a business’s assets (e.g. equipment, intellectual property, etc.) free and clear of any liabilities (e.g. bank debt, long term contracts, etc.). In a stock sale, the buyer purchases the entire company – assets and liabilities.

The conventional wisdom in sale of business transactions is that the buyer should always choose an asset purchase instead of a stock purchase because a buyer does not want to buy someone else’s debts or obligations. In fact, must business transaction are assets-only sales. 

The Benefits of a Stock Sale

However, sometimes there are very good reasons to choose to buy a company’s stock with both assets and liabilities. An established business often has existing contractual relations with vendors, lenders, customers, and employees that can be hard to re-establish during a transition. Continuity can be better than starting from scratch. An established business will also have all required permits and licenses with governmental bodies to conduct business, and it cost a buyer time and money to get through the red tape. There may be tax advantages in buying a business’s stock rather than its assets.

If you are considering buying a business, you need to consult with professional advisers to fully understand your options and how to structure the acquisition.  Our team of experienced business law attorneys are ready to assist. Please contact us or call 803.929.0096.

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