Buying/Selling a Business: Asset Purchase vs. Stock Purchase


If you’re buying or selling a business in Florida, there are several things to consider. If the business in question is a corporation, the method of sale of the transactions for both parties. Is the buyer purchasing assets or stock? The distinction is critical because buyers favor one and sellers favor the other. Here’s what you need to know about each.

What’s the difference?

Buyers like asset purchases. This is because they get to evaluate the assets and pick and choose which ones they want.

For example, based on his or her evaluation, the buyer may only want to purchase actual assets of a company located in South Florida, including existing inventory, buildings, or equipment. Or, based upon his or her circumstances and preferences, the buyer may want intangible assets, instead. Intangible assets are generally classified as intellectual property, brand recognition, or trademarks and copyrights, and tend to be more difficult to value.

Finally, this type of arrangement also allows buyers to forego the purchase of any assets (tangible or intangible) that carry certain risks.

As its name indicates, in a stock purchase, the buyer isn’t buying any assets at all. Instead, he or she is paying for the stock, or similar ownership interest in a corporation, along with the right to assume the prior owner’s role. This means there is less legwork (and less paperwork) for the seller because there is no need to re-title individual assets or complete revaluations.

In other words, sellers like the stock purchase arrangement because it gives them a quick, clean and simple break from the business with no future ties once the transaction is completed.

Of course, the negative aspects of stock purchases should also be taken into account. The downside for the buyer is that they must assume all of the company’s liabilities.  The downside for the seller is the possibility that some shareholders will want to keep their stock. In this scenario, even one holdout can create unwanted headaches including a lengthier process and acquisition cost adjustments.

Understanding the tax implications

When it comes to tax implications, the stock purchase transaction benefits sellers and the asset purchase benefits buyers. Here’s why:

In a stock purchase arrangement, the seller is usually allowed to pay taxes at the lower capital gains rate. However, a corporation that sells its assets is often subjected to double taxation.

Conversely, a buyer benefits if it purchases an asset with increased value because he or she can write up its basis to the fair market value paid.  He or she can then claim increased tax depreciation, resulting in lower taxable income and lower taxes.

A stock purchase arrangement isn’t always possible

One final point to keep in mind is that a stock purchase agreement isn’t always an option. This is simply because certain businesses, such as sole proprietorships, partnerships or limited liability companies don’t have stock.  However, the owners of these entities can sell their partnership or membership interest. The businesses themselves can also sell their assets.

The bottom line is that Buying or Selling a Business in South Florida is a complicated transaction that shouldn’t be completed without the help of qualified legal and financial professionals. To learn more about how the legal team at Loshak Leach LLP can facilitate the process, simply schedule an appointment online or call our office, conveniently located in downtown Fort Lauderdale, at (954) 334-1122.

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