The decision to structure the sale of a business as an asset or a stock is difficult because the buyer benefits from assets and the seller benefits from stock sales. All business transactions are individual and should be discussed with the respective legal and financial parties involved.
What’s Involved In An Asset Sale?
An asset sale involves a buyer purchasing individual assets and the liabilities that go along with them while a stock sale is a buyer purchasing a piece of an owner’s corporation. The main concerns when dealing with business transactions are the tax implications and any potential liabilities.
Is A Stock Sale Possible?
A stock sale is not possible if a business is a sole proprietorship, partnership, or a limited liability company. Simply because these business structures do not have stock. The owners of these businesses can sell their interests. If the business is incorporated, the buyer and seller have to agree on if they should do an asset sale or stock sale.
What’s Gained In An Asset Sale?
With an asset sale, the buyer gets the company assets, such as all equipment, licenses, leaseholds, trade secrets and names, phone numbers, and inventory. No cash is involved, and the long-term debt remains with the seller. This is called a cash-free, debt-free sale. Net working capital is also included, which is simply accounts receivable, payables, prepaid and accrued expenses.
What’s Gained In A Stock Sale?
With a stock sale, the stock is purchased directly, and the buyer is the new legal owner. Any unwanted assets and liabilities will be resolved prior to the sale. Stock sales are different from asset sales because the assets don’t have to be listed as individual since each asset is already within the corporation.
What Is More Common Asset Sales Or Stock Sales?
According to Pratt’s Stats database, almost half of all business transactions are stock sales. Of course, this generalization varies by company size. The larger the company, the more likely it is to have stock sales. If you need help deciding whether to sell as an asset or stock you can always reach out to our experienced Coachella Valley mergers and acquisitions attorneys.