Selling your business can be a confusing and emotional time for a business owner. Whether you are retiring, moving on to something new or you have been offered an irresistible deal, choosing to put your business in the hands of someone else can be a complicated process.
In order to make the best decision for you, your family and your leadership team, you need to know what options are out there to get the best value for your years of hard work.
Before getting into selling your business, let’s first define what an asset is. The assets of a business come primarily in two forms: tangible and intangible. Tangible assets are ones that are physical in nature such as equipment, buildings or product inventory. Intangible assets are not physical in nature such as trademarks, copyrights and other forms of intellectual property.
What about employees? What category do they fall under? When selling a company, employees cannot be considered an asset at all. While your employees have significant skills and value, there are specific conditions in how they are valuated in the sale of the business.
There are two types of business sales: Asset Purchase and Stock Purchase.
An asset purchase is a transaction in which one party purchases the assets of another party, rather than acquiring the entire company or organization. Assets may include tangible items such as buildings, equipment, and inventory, as well as intangible assets such as intellectual property, patents, trademarks, and customer lists.
This type of transaction can be an attractive option for both buyers and sellers. Buyers can acquire specific assets that align with their business strategy, without being burdened by the liabilities or obligations of the seller. On the other hand, sellers can sell off assets that are no longer core to their business or generate cash flow to fund other strategic initiatives.
Asset purchases are often used in mergers and acquisitions (M&A) as a way to acquire a target company’s most valuable assets while avoiding taking on the risks and liabilities associated with the entire organization. In addition, asset purchases may also be used to facilitate a restructuring of a company or to raise capital by selling off non-core assets.
The legal and financial aspects of an asset purchase can be complex, and it is important for both parties to seek the advice of experienced professionals, such as attorneys and accountants, to ensure that the transaction is structured properly and all legal and tax implications are considered.
A stock purchase is a type of transaction in which one party acquires the shares of a company from its existing shareholders, thereby gaining ownership and control of the company. Unlike an asset purchase, a stock purchase involves the acquisition of the entire company, including all assets, liabilities, and obligations.
In a stock purchase, the buyer purchases the shares of the company directly from the existing shareholders, rather than acquiring specific assets or liabilities of the company. This type of transaction is often used in mergers and acquisitions (M&A) and can be an attractive option for buyers who want to acquire an existing business with a proven track record, established customer base, and existing operations and infrastructure.
One of the key advantages of a stock purchase is that the buyer can acquire the entire company, including all of its assets and liabilities, in one transaction. This can be beneficial for buyers who want to avoid the time and expense of acquiring individual assets and liabilities through an asset purchase.
Another advantage of a stock purchase is that it can provide tax benefits for both buyers and sellers.
For example, if the company being acquired has significant tax carryforwards or other tax attributes, the buyer may be able to use these attributes to offset future tax liabilities. In addition, in some cases, the seller may be able to receive capital gains treatment on the sale of the company’s stock, rather than ordinary income treatment on the sale of assets.
However, stock purchases can also be more complex and risky than asset purchases, particularly if the buyer is acquiring a company with significant liabilities or legal or regulatory risks. As with any M&A transaction, it is important for both parties to conduct thorough due diligence and seek the advice of experienced professionals, such as attorneys and accountants, to ensure that the transaction is structured properly and all legal and tax implications are considered. Overall, stock purchases can be a powerful tool for businesses seeking to expand their operations, gain market share, or acquire strategic assets.
Talk to a Knowledgeable Legal Team for Advice
Whether you are selling your business, buying one, or even setting up your business structure, talk to a trained and knowledgeable legal team to help along the way. Contact the Law Offices of Cipparone & Cipparone today to protect you for tomorrow.
**This blog is for general informational purposes only. Cipparone & Cipparone, P.A. does not distribute legal advice through this blog. As such, this blog does not constitute legal or other professional advice, and no attorney-client relationship is created between the reader and Cipparone & Cipparone, P.A.Tags: Business Law, Business Valuation