1. Understanding the Key Difference Between a Stock or Asset Sale
2. Concerns with a Stock or Asset Sale
3. Items of Consideration

The difference between stock purchase and asset purchase is important if you want to sell the stocks or assets of your business. Therefore, when determining how to structure the sale of your business, you need to consider whether you want to engage in a sale of your company’s assets or the sale of its stock. This can be a confusing decision for a lot of business owners, as they are unsure of which option is best for them.

Keep in mind that most business sellers prefer to sell their stock, yet most buyers prefer to purchase the assets of a company rather than the stock. With that said, all business sale contracts are different depending on the type of company being sold and the actual business structure. When an asset sale occurs, the buyer will purchase the company’s assets and liabilities. In a stock sale, the purchaser will purchase the owner’s actual shares in the company.

Understanding the Key Difference Between a Stock or Asset Sale

The main difference between each type of sale is with regard to what the prospective buyer is getting. Regardless, if the buyer purchases all of the business’s assets or stocks, the buyer will now be the new owner of the business. However, the sale of stock or an asset differs in terms of the steps required for such a formal sale.

When selling stock, the owners’ of the company all sell their shares to the buyer. Thereafter, the buyer will now have 100% control over the business. This is usually what is done when the parties enter into a stock purchase agreement. However, there are times when a prospective buyer might only want to purchase partial shares in the business. Depending on how many shares are being purchased, the steps taken might differ in terms of what is required.

When selling assets in a business, the actual assets, along with liabilities, are sold to the prospective buyer. This means that the buyer will now hold all assets and liabilities of the company, essentially stepping into the shoes of the seller. Therefore, any current contracts or outstanding debt is now the responsibility of the new owner.

Concerns with a Stock or Asset Sale

When it comes to either type of sale, there are two main concerns:

  • Tax implications
  • Liability concerns

If the business for sale is a sole proprietorship, partnership, or limited liability company, then the sale can’t be structured as a stock sale since these types of businesses generally don’t have stock to offer. Therefore, such business entities will engage in a sale of assets. However, if the business operates as a corporation, whether a S corporation or C corporation, then the buyer and seller must come to an agreement as to how they will structure the business deal, and whether it will be a sale of the assets of the corporation or a sale of the owner’s shares.

With regard to the sale of a corporation, however, all owners must be in agreement. Therefore, one of the owner’s can’t simply enter into a contract to sell all of the company’s shares or assets to a potential buyer without a prior vote and approval of such a decision.

Items of Consideration

When entering into an asset purchase agreement, the parties must consider whether the actual sale will include the sale of all owners’ individual assets or if only certain owners’ assets in the business will be sold. Similarly, will the buyer also assume the liabilities of such owners?

When entering into a sale of a stock purchase agreement, the same questions are generally asked. Will the buyer purchase all shares in the business or will he simply purchase the shares of only one of the owners’? If the latter, then generally the other shareholders need not formally approve the sale, as it is rather easy and straightforward to sell one’s shares to another. However, if the buyer wants to purchase all shares in the company, and therefore take over in terms of ownership, then the current owners’ and prospective buyer must meet to discuss such considerations.

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