|When it comes to selling a business you have two options to choose from: either to sell it through a stock sale or an asset sale. An asset sale is the acquisition of individual assets and liabilities of a business. A stock sale is the acquisition of the owner’s share of the company. The type of the business itself usually suggests the way it should be sold in. For example, a limited liability company or a sole partnership company cannot be a subject to a share sale as none of the entities has stocks.|
Selling a business via asset sale the seller keeps the possession of the legal entity and the purchaser buys individual assets of the company separately. The assets can be classified into tangible and intangible assets. The tangible assets include buildings, land, inventory, equipment, cash, investments. Whereas, the intangible assets are licenses, patents, copyrights, goodwill, trademarks, customer list. The different assets of the business are individually assessed and included in the selling price. An asset sale enables the seller to choose what assets he/she wants to sell and what he/she prefers to keep
If your business is not incorporated – there are no share certificates – an asset sale will be your only selling option. The major benefit of purchasing a business with an asset sale is that it helps the buyer avoid inheriting random liabilities such as contract disputes, employee lawsuits or warranty issues. However, it can also cause some difficulties for a buyer as certain assets are difficult to transfer because of a legal ownership or assessment standards. For instance, intellectual property, leases, contracts are the assets that represent difficulties of transfer. Evaluating the company’s assets can also be a controversial topic. For example, if you value your business’s goodwill for $25,000, you have to prove that it is worth that amount. In a situation like this, it is advisable to seek professional assistance to assess and sell your assets at a reasonable price.
Buying a business through a stock sale (also known as share sale), the purchaser obtains the ownership of the whole legal entity of the seller. In a share sale, the buyer gets all the liabilities of the company along with the rest of the business. The benefit of a stock sale is that there is no need for separate transfers for each individual asset which simplifies the process significantly. However, obtaining a business through a stock sale, the buyer gets the potential liabilities of employee issues, environmental concerns, processing lawsuits and so on.
The major requirement of a stock share is that your business must be incorporated to be qualified for a stock sale. Selling a business in a stock sale can provide a number of tax advantages for both the seller and the purchaser. For example, the seller can take advantage of Entrepreneurs’ Relief to remove half or all tax liabilities he/she would otherwise have. And if there are accumulated losses in the company, the buyer can have the losses written off against future tax liabilities.
Both types of business sales have benefits and drawbacks concerning tax implications, the extent of liabilities, customer or bank relationships, etc. There are also ways to alleviate commercial, taxation and legal risks associated with both types of transactions. Seeking legal advice when selling a business can retain you from many future problems. An experienced business attorney can help you determine the best and the most profitable type of business sale according to your business’ features.
The knowledgeable and experienced business lawyers at the Margarian Law firm will guide you through the whole selling process from choosing the most suitable type of transaction for your particular business and preparing sales agreement to setting and negotiating a price.