If and when you intend to buy another company, you have a decision to make. Should you purchase the company’s shares or its assets? As a buyer, there are advantages and disadvantages to both.
A Share Sale
Buyers consider this an option when they are purchasing an established brand. Symbols, logos, words, and phrases are valuable pieces of intellectual property. By buying the company’s shares, you own everything—including their protected intellectual property. If the company has established a firm reputation within a market or locale, you might leverage that to your financial advantage.
However, there is a justifiable concern with purchasing shares because you then own the company’s liabilities, or obligations, as well as its assets. The past actions of a company are now yours to answer for. If you buy a company and learn (after the sale) that they, for example, have been unlawfully discriminating against employees or dumping hazardous waste, then the past action is your current liability and responsibility to handle, including any costs.
Asset Sale
An asset sale occurs when a buyer purchases the company’s assets rather than the company. This includes both purchasing physical and intangible assets. For example, if you plan on acquiring a construction company, you have the ability to acquire their equipment—but you can buy their intellectual property (trademark, domain name, patents) and contracts as well.
That is the main benefit of an asset purchase and why buyers prefer this structure. The buyer can be selective on what parts of the company to acquire. The liabilities stay with the selling company.
There are some disadvantages to an asset purchase. Just because you can purchase contracts doesn’t mean that it comes without hurdles. The contract is likely in the selling company’s name and the customer or business that signed the contract with the selling company may not consent to its transfer. When you buy shares of the selling company instead of just its assets, in most cases the contract a customer or vendor signed stays with the company that you now own.
Spitz Legal Counsel LLC
Buying a company through either means is a complex process. In addition to all that has been previously discussed, there are legal and tax implications associated with both decisions. Protect yourself and your investment by speaking to a business law attorney. If you have further questions or are ready to speak to legal counsel, contact Spitz Legal Counsel, LLC to book your free consultation. Our goal has always been the same: to help your business succeed. We offer tailored solutions to meet the needs of your business objectives.