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Comparing asset purchases to stock purchases

Business professionals in Texas may benefit from understanding more about the advantages and disadvantages that differentiate stock purchases from asset purchases. When a party has chosen to acquire an interest in an existing business, the next decision involves completing the transaction by buying the target's stock shares or purchasing its business assets. In contrast to solely buying the majority share of the company's stock, buying its assets may include purchasing inventory, stock, equipment, vehicles and production facilities.

Some corporations prefer acquiring the assets in order to have more control to specify which liabilities to assume and which to avoid. Simply purchasing the stock may leave the buyer susceptible to unknown liabilities later on. Some companies prefer the buying the stock because purchasing the assets requires the buyer to retitle everything in their name. Asset purchases are typically simpler because the agreement is usually between the two parties, and the transactions avoid the heavy regulation associated with federal or state security requirements. However, there may be adverse tax implications in purchasing the assets if the sales price exceeds the values of the assets.

Purchasing the stock helps the buyer avoid additional permits, contracts and licenses. However, discontent amongst minority shareholders or a refusal to sell shares could create hardships for new owners. Stock purchases of businesses with a small number of shareholders are often a simpler process. In addition, stock purchases may be subject to state taxes, while the goodwill in asset purchases may be amortized over a span of 15 years.

Corporations interested in making a significant acquisition typically contact legal counsel for consult. Lawyers may be able to review corporate transactions in an effort to mitigate the potential of adverse outcomes transpiring later on. Lawyers may also review transaction in an effort to ensure there is no illicit activity that could warrant legal action in the future. Many corporations depend on legal representation to negotiate the terms and draft the contracts for the most important transactions.

Source: FindLaw, "Asset Purchase vs. Stock Purchase: Advantages and Disadvantages", September 21, 2014