Are you ready to transact your business? One of the most important considerations is whether you structure the business purchase as an asset or a stock purchase. The structure of the transaction depends on the needs of the parties involved. However, a majority of transactions are asset purchases rather than stock.
Each has advantages and disadvantages and if you are considering buying a business, you should speak with an attorney and your CPA first.
This article will briefly discuss the two purchase structures.
Simply stated, a stock purchase occurs when the stock of the company is sold to an acquiring party. Sellers prefer this type of transaction. The reason being, the buyer assumes all the assets and liabilities of the seller.
As a buyer, a stock purchase requires more due diligence upfront. Because, at the end of the day, no one wants an unforeseeable liability creeping up. This is the primary risk of a stock purchase. Are there any other liabilities out there that were not identified?
One of the primary advantages of a stock sale is the ability to transfer. There is no need to distinguish what assets and liabilities are being assumed by either party. In addition, the buyer does not have to create a new company for the purchase. Lastly, contractual agreements stay in place, which can be key for many looking to buy or sell a business.
An asset purchase transfers ownership of all or some of the assets of the business to the buyer. Unlike a stock purchase which requires the buyer to assume the liabilities, in an asset purchase the buyer and seller negotiate which liabilities will be assumed by the buyer. This is very advantageous to the buyer. After adequate due diligence, the buyer knows exactly what is being purchased and can choose what liabilities they do not want.
Buying a business should not be difficult. With the help of a lawyer, business broker, accountant, and appraiser, you will be in good hands. An accountant and a good lawyer with transaction experience will be vital the structure of a business purchase.
Peak Business Valuation would love to help in the purchase of a business. We have contacts with several professionals across the country and provide business valuations to help in the negotiation process. Questions are always welcome. Please reach out via email or phone call.