Motiva Business Law

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(630) 517-5529

Oak Brook, Illinois

Stock Sale Versus Asset Sale in a Business Acquisition

asset sale

If you are considering selling your company, it is important to understand the few ways that this can occur. Maybe you wish to fully sell or perhaps you would like to continue owning a certain number of shares to stay connected to your business. Whatever route you are leaning toward, it is a good idea to discuss your options with a business lawyer to have a full grasp of the pros and cons of each sale type. At Motiva Business Law, our business attorney is prepared to help you with every step of the sale process, starting with explaining the legal terms and options surrounding business acquisitions.

For Better Legal Understanding

As a business owner, you may have a team to help you understand the complexities of business law. Before comparing asset and stock sales, you should first have an understanding of the terms being used. The term “business acquisition” refers to when one company purchases a company in order to fulfill particular strategic goals related to revenues, market share, product or service offerings, or competition. With stock sales, the purchasing party is given shares of the business. Once the buyer holds all of the target shares, the buyer has control of the business by becoming its owner. In an asset sale, the purchasing party is given assets. Once the buyer has all of the company’s assets, it controls the business since he or she holds everything that made the seller’s equity worth something such as intellectual property, goodwill, customer lists, branding, and tangible property.

A Comparison of the Two

As is the case with any business transaction, there are pros and cons with each type of sale. If a stock sale is made, the buyer does not need to put money toward revaluations or retitles of individual assets. This can be a costly process that is required with asset sales. The buyer can also avoid paying transfer taxes. On the other hand, stock sales do not provide the same tax benefits that are available with asset sales. In asset sales, the buyer can obtain tax reductions as a result of the sale’s structure. Asset sales also allow the buyer to dictate the liabilities he or she will assume in the purchase. If certain liabilities are significant, unknown, or not stated by the seller, the purchasing party is more likely able to transfer that responsibility back to the seller. The difficulty with asset sales is the higher tax cost to the seller, which often leads to a higher purchasing price. These sales can also require significant contract negotiations, with legal assistance on both sides. Ultimately, each business transaction is unique and those circumstances also play a big role in determining which type of sale is most appropriate. With all that said, a creative and knowledgeable business attorney can structure the sale terms to make any disadvantages less impactful.

Contact an Oak Brook Business Acquisition Attorney

Considering selling or purchasing a business is a big step to take. Any missteps can lead to significant financial implications, unknown liabilities showing up in the future, and more. Before deciding your next steps, you should discuss the details of your situation with a DuPage County business lawyer. At Shakfeh Law LLC, we assist business owners, sellers, and buyers with mergers and acquisitions regardless of the size of their business. With over a decade of experience in business law, Attorney Shakfeh is well-equipped to take on your case. Call our firm today at 630-517-5529 to arrange a private consultation.

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