Determining whether to structure a company sale as an asset sale or a stock sale is an obsession as the parties concerned often get profit from crossing structures. Usually, buyers favor asset sales, whereas agents prefer stock sales. Whether the sale is a sale of assets, stock, or partnership, or group interests, various problems must be examined, including the price, the complexities of getting the sale done, and the tax implications. 

Overall, the transaction is structured as a stock sale. When purchasing an asset, the buyer agrees to acquire certain assets and liabilities. This means that they only take on the chances of those specific assets.

Considering the pros and cons of an asset sale and a stock sale will assist the buyer or seller in determining which construction is best for their transaction. 

Asset Sales

Through an asset sale, the seller continues as the legal owner of the entity. At the same time, the buyer obtains individual assets of the business, such as tools, fixtures, furniture, licenses, trade secrets, trade names, accounts payable and receivable, and more. The purchaser can command which, if any, liabilities it is going to deal with in the transaction.

Buyers like asset sales since it enables a buyer to get wanted assets and leave undesired assets behind with the dealer. In particular, this gives a buyer the chance to decrease its risk of finding unknown liabilities of the received business, particularly contingent liabilities in the form of stock liability, contract disputes, product warranty problems, or employee lawsuits.

However, asset sales may also give difficulties for buyers. Several assets are more complicated to transfer due to assignability, legal ownership, and third-party consents.

Sharing records in an asset sale often will need third-party authorization since the party to the contract will change. For example, government approvals or filings can be required to complete several intellectual property transfers or agreements, and government permits may be non-transferable.

Stock Sales

In a stock sale, instead of picking particular assets and liabilities to acquire, the buyer receives an ownership stake in the whole business, including both the assets and liabilities of the business.  

The company’s legal status simply stays the same, and the company’s name, operations, contracts, etc., all stay in place unless otherwise considered by the purchase agreement.

Most guarantees the seller has, such as leases and permits, transfer automatically to the new buyer. 

Marketers often give their preference to stock sales because taxes are applied to the profits at a lower capital gains rate. In C-corporations, corporate-level taxes are avoided, preventing double taxation. 

Who to Apply to?

Here is where Leo Berwick comes to help you solve the dilemma between asset sales vs stock sales. Leo Berwick is a consulting agency with professional staff who are simply leaders in their firm. Their company provides solutions to the most difficult questions and concerns that you may have about the tax landscape.

There are always two sides to the coin. Sellers are less effective for future liabilities, such as product responsibility claims, contract claims, employee lawsuits, pensions, and benefit plans. On the other hand, with stock sales, buyers lose the capacity to gain stepped-up security in the assets and do not re-depreciate particular assets. Professionals at Leo Berwick will help you understand the pros and cons of each process and choose the most favorable option for you.