Key Takeaways

  • Buying assets instead of stock helps avoid unwanted liabilities and gives the buyer flexibility in what they acquire.
  • An asset purchase can include tangible and intangible items, such as equipment, customer lists, or intellectual property.
  • Buyers may still face successor liability in certain cases, such as fraud or continuity of the business.
  • Conducting due diligence, negotiating specific terms, and understanding tax implications are key steps in a successful asset purchase.
  • Buyers must be aware of and comply with state-specific bulk sales laws to reduce liability risks.
  • "Buy used assets" opportunities are attractive for their potential cost savings, but require careful legal and financial planning.

Buying assets of a business entails purchasing items such as property, fixtures, equipment, and customer and client goodwill. This results in the previous owner's business ceasing to exist. Your business takes over with all the old business' assets.

Information for Buying Company Assets

When purchasing a company's assets, you do not want to include the liabilities. To exclude the liabilities, you would buy only the assets and not the company's stock.

Buying the company's assets and avoiding buying the liabilities is just one of many ways a company can purchase another. An asset purchase is not limited to buying all the assets; the acquiring company can be selective in the assets it wants to purchase. In general, the company buying the assets is in a more favorable position than the company selling its assets.

While the primary value of buying company assets is avoiding taking on the responsibility of the liabilities, certain rules must be followed to avoid the company being classified as a de facto merger.

In a de facto merger, the court of law views and treats the transaction as the companies having merged instead of one company buying the assets of the other company. In this case, the purchasing company is held responsible for the other company's liabilities.

De facto mergers also apply to the acquisition of companies that continue to use the same personnel and those that commit any form of fraud to avoid liabilities.

Regardless of the amount paid for the assets or the conditions of the agreement, the company being purchased is still responsible for certain payments. Ignoring these responsibilities is a violation of state statutes. The company being acquired is responsible for the following three liabilities:

  • Workers' compensation premiums
  • Unpaid excise taxes
  • Unemployment taxes

The purpose of these liabilities is to prevent taxpayers from going out of business to avoid taxes. These statutes apply whenever a seller is selling, exchanging, or disposing of their business and a buyer becomes the successor.

The process of liabilities being transferred from the seller to the buyer is called successor liability. This is a risk associated with the sale of assets when fraud on creditors is involved or when the seller and the buyer are common owners.

Even if assets are purchased at a fair price and there is no fraudulent activity on the part of the seller, the statutes can be triggered.

A "successor" is someone who buys or has conveyed to them, either directly or indirectly, a major part of a business's merchandise, inventory, materials, supplies, and equipment by a seller.

Using Georgia as an example, the Department of Revenue has regulations in place covering the role of a successor. The definition of "major part" in the regulations states that a successor must purchase assets at more than 50 percent of their market value at the time they are sold. If it is found, there is more than a 50 percent interest in the fair value of assets; this can result in successor liability. The regulations do have some limitations regarding who is considered a successor.

It is also possible that debts will be incurred by the successor that exceeds the value of the company assets purchased. Buyers need to be aware of the statutes and how to avoid them as well as other potential issues.

Advantages of an Asset Purchase Structure

When buyers choose to buy used assets rather than a company’s stock, they can gain substantial control over the transaction. This approach enables the buyer to:

  • Select specific assets: Buyers can cherry-pick what they want—equipment, real estate, customer lists—without acquiring unwanted inventory or debt.
  • Avoid liabilities: Generally, buying used assets avoids assuming the seller's liabilities unless explicitly agreed upon.
  • Receive a stepped-up tax basis: The buyer may allocate the purchase price to specific assets, allowing for higher depreciation and amortization, which can create tax savings.
  • Structure deals more flexibly: Parties can negotiate favorable terms around asset value, payment structures, and exclusions.

This structure is especially appealing for entrepreneurs or companies seeking to expand without inheriting legacy issues from the seller.

Bulk Sales Laws and Successor Liability

Many states, including California, have bulk sales laws designed to protect creditors when a business sells most or all of its assets outside the ordinary course of business. These laws require:

  • Advance notice to be filed or published about the sale.
  • Clearance of outstanding debts or tax obligations before the transfer is finalized.
  • Retention of funds by the buyer to cover any tax liability the seller may owe.

Failure to comply with bulk sales laws may expose the buyer to successor liability. Even if you only buy used assets, you could be deemed liable if the transaction closely resembles a merger or continuation of the seller's business. Risk factors include:

  • Continuation of the same business name or location.
  • Retaining most of the same employees.
  • Marketing to the same customer base.

Buyers should consult legal counsel and perform thorough due diligence to identify and mitigate risks associated with these laws.

About Asset Purchases

The difference between an asset purchase from a stock acquisition and a purchase from a merger is the person or company making the purchase does not include ownership or stock in the target company. The buyer may pay cash or use company stock as payment.

In turn, the buyer may be purchasing some or all of the following:

  • Furniture
  • Lease rights
  • Business permits
  • Lease rights
  • Franchise rights
  • Trademarks

Two categories are generally involved in the purchase of a company's assets: operational assets and intangible assets.

Operational assets are used to provide services for customers or to make products. An example would be an espresso machine used in a coffee shop. Intangible assets are usually ownership rights that have no physical substance. Examples of intangible assets include copyrights, licenses, and permits.

Common Assets Included in a Purchase Agreement

When structuring a deal to buy used assets, it’s essential to understand which assets typically transfer in these agreements. Common inclusions are:

  • Tangible Assets: Office furniture, machinery, inventory, and real estate.
  • Intellectual Property: Trademarks, patents, copyrights, and domain names.
  • Customer Lists: Valuable for service-based or subscription businesses.
  • Contracts: Leases, supplier agreements, and client contracts (subject to assignment clauses).
  • Business Licenses and Permits: If transferable, these can help expedite the buyer’s ability to operate.

However, certain items—like employee agreements, unassignable contracts, or liabilities—typically require special negotiation or are excluded by default.

Due Diligence and Valuation in Asset Purchases

Conducting proper due diligence before you buy used assets is critical to a successful acquisition. This process includes:

  1. Asset Valuation: Hire a valuation expert to determine the fair market value of tangible and intangible assets.
  2. Title Verification: Ensure the seller owns the assets outright and that they are free of liens.
  3. Inspection and Testing: Particularly for equipment, software, and property.
  4. Review of Contracts and Licenses: Confirm what can be legally assigned or transferred.
  5. Tax and Legal Compliance: Check for outstanding taxes, lawsuits, or environmental issues.

These steps reduce the chance of post-sale surprises and strengthen the buyer’s legal position in negotiations.

Tax Implications of Buying Used Assets

Asset purchases can have distinct tax advantages and considerations compared to stock purchases. For the buyer:

  • Depreciation benefits: Tangible assets can often be depreciated based on their allocated purchase value.
  • Amortization of intangibles: Intangible assets like goodwill or trademarks can be amortized over time.
  • Sales tax: In many states, the buyer may be responsible for paying sales or use tax on certain asset types.

The IRS requires that both parties file Form 8594 to report the asset allocation categories, which include:

  1. Cash and equivalents
  2. Inventory
  3. Tangible personal property
  4. Real property
  5. Intangible assets
  6. Goodwill or going concern value

Proper allocation and documentation ensure compliance and optimize potential deductions.

Frequently Asked Questions

1. What does it mean to buy used assets from a business? It means purchasing selected equipment, property, or intellectual property without taking over the entire company or its liabilities.

2. Can I avoid liabilities by structuring an asset purchase? Yes, generally. However, successor liability may still apply under certain state laws or if the transaction resembles a merger.

3. What should be included in asset purchase due diligence? Review of ownership records, valuation of assets, transferability of contracts, environmental risks, and pending legal obligations.

4. Are there tax advantages to an asset purchase? Yes. Buyers often benefit from depreciation and amortization on purchased assets and can allocate value for favorable tax treatment.

5. Do I need a lawyer to help buy used assets? While not legally required, working with an attorney ensures compliance with state laws, protects against liability, and helps negotiate favorable terms. You can find experienced attorneys through UpCounsel.

If you need help with buying assets of a business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.