Selling Your Company: Stock Deal or Asset Deal?

18 Sep

By:  Benish Shah
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Fashion/Retail, E-commerce, Commercial Litigation, Art Law, Startup Law, Social Media, Mergers & Acquisitions, and Corporate & General Counsel
  

Most companies here the the phrase “mergers and acquisitions” being thrown around in the corporate world as if we’re all talking about something as simple as grabbing a cup of coffee from Starbucks.  Mature companies and startups all say that their goal is to be acquired.   However, when asked a specific question – like “would that be a stock deal or asset deal?” – there is a bit of confusion, and mild panic.

The truth is, selling your company is not as simple as it sounds.  But, to break it down, there are generally two types of acquisition deals that companies can enter into:  (1) Stock Purchase Deal; or (2) Asset Purchase Deal.  Either the buyer purchases all of the assets of the selling business, or the buyer purchases all of the ownership interests (stock, membership interests, etc.) and takes over the company.  Once the buyer has taken over, the company can either continue as a subsidiary or be merged into the buyer.  If the selling company is not a corporation or an LLC (for example, if it is a partnership) the deal has to be for assets.

Asset Purchase Deal

In asset purchase deal, the buyer purchase all the assets of the company by paying cash, stock, or other property. The assets include everything used in the operation of the business; from equipment, to websites, intellectual property, contracts, and even client lists.  The buyer is often shielded from having to buy any liabilities of the seller, or any assets of the selling company.  One key thing is that the assets of the selling company have to be formally assigned to the buyer, including: contracts, vehicles, intellectual property, websites, leases, real property, etc.  This may require getting consent from other parties, which can prolong the asset acquisition process.

Stock Purchase Deal 

In a stock purchase deal, the buyer buys all the stock of the selling company.  The concept is a bit more simple because there is no need to transfer the assets.  The selling company still owns all of its assets when the deal closes, but the buyer is now the new owner of the company.  However, the problem that many buyers have with stock purchase deals is that the buyer will be keeping all the assets and all the liabilities of the selling company.

Knowing the basics of these structures, sellers will generally go for a stock purchase deal and buyers tend to prefer an asset purchase deal. Depending on the facts of the deal, each type of deal has its pluses and minuses. But the most important part is knowing the basics so you can be armed with the right information when shopping your company around.

Interested in discussing the acquisition of your company?  Contact: Benish Shah or Sheheryar Sardar at  Sardar Law Firm – sardar@sardarlawfirm.com.

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