Stock Sales vs Asset Sales

When purchasing or selling a business an initial decision is how to structure the deal.  The two most common structures are an asset sale or a stock sale. Sunbelt is licensed to use both methods and has extensive experience in doing so.
 In an asset sale, some or all of the assets may be sold but the underlying ownership of the selling corporation does not change.  In a stock sale, no assets of the corporation are sold, instead the buyer purchases all of or a controlling stake of the ownership interests (i.e. shares) of the corporation in return for cash and/or other consideration to the selling shareholders.

Buyer’s Perspective

• Generally favored by buyers
• Purchase price is allocated among purchased assets and buyer receives a fair market value step-up basis, which generates higher depreciation deductions
• Buyer can “cherry-pick” which assets and liabilities it will purchase and assume
• This is problematic if seller has key contracts or permits that cannot be assigned without third party consents

Seller’s Perspective

• Generally disfavored although many of the issues can be mitigated
• Sale of “hard” assets (i.e. buildings, fixtures, equipment, etc.) likely subject to higher ordinary income tax rates
• If seller is a C-Corporation subject to double taxation but there are ways to mitigate this issue
• Allows seller to retain assets and business lines within existing corporate structure

Buyer’s Perspective

• Can be Positive or Negative but generally disfavored unless assignability or licensing issues exist
• No ability for buyer to receive a stepped-up basis in assets
• Buyer takes seller’s corporation “as-is” and inherits all liabilities, employee issues and other actions taken by seller in the past, known or unknown. This can also be mitigated for a buyer by using comprehensive representations and warranties by seller’s owners and indemnification provisions in the purchase agreement

Seller’s Perspective

• Generally favored
• Nothing changes but owners of stock
• Taxed at lower capital gains tax rates
• No agreements or permits to transfer
• More difficult to keep other business lines under corporation intact