Boulder City Magazine® August 2007 Issue
by Rodney S. Woodbury, Esq.
Woodbury, Morris & Brown
Asset Purchase vs. Stock Purchase
If you are considering buying or selling a business, there are generally two ways to structure the deal. One is an asset purchase, and the other is a stock purchase. In an asset purchase, the buyer purchases only certain assets of the company, such as real estate, vehicles, equipment, inventory, leases, licenses, contract rights, government approvals, product or business names, and other such tangible and intangible personal property.
Boulder City Magazine®
|By contrast, in a stock purchase, the buyer purchases the entire business by acquiring all of the stock or ownership interests of the company, thereby essentially stepping into the seller’s shoes. There are advantages and disadvantages to both types of structures, depending on the nature of the business, the amount and types of assets it owns, the extent of its obligations, its potential exposure to liability, and whether you happen to be the buyer or the seller in the transaction.
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, often 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 usually less complicated than assets purchases and consequently less expensive. Similarly, stock purchases typically minimize interruptions to the business, whereas asset purchases usually necessitate re-titling of purchased assets in the name of the buyer, renegotiating contracts with third parties, and reapplying for new registrations, licenses, permits, and approvals from applicable governmental authorities, all of which can be very burdensome. Finally, stock purchases make it easy for business to continue under the same name and with the same employees, particularly key employees.
Rod Woodbury is with the law firm of Woodbury, Morris & Brown and can be reached at www.wmb-law.net.
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