Stock vs. Asset Purchase
Posted on Oct 1, 2023 4:00am PDT
A stock purchase and an asset purchase are two common ways to acquire a
company. They have distinct differences in terms of how the transaction
is structured and the implications for both the buyer and the seller.
Here are the key differences.
- Ownership Transfer
-
Stock Purchase
- In a stock purchase, the buyer acquires the ownership of the company by
purchasing its shares of stock from the existing shareholders. This means
the buyer becomes the new owner of the entire company, including all its
assets, liabilities, and contracts.
- The ownership structure of the company remains unchanged, and the company
continues to exist as a legal entity.
-
Asset Purchase
- In an asset purchase, the buyer purchases specific assets and liabilities
of the company rather than the company itself. This often includes things
like equipment, real estate, contracts, and inventory.
- The seller typically retains ownership of the company, and the buyer establishes
a new legal entity to hold the acquired assets and operate the business.
- Liabilities
-
Stock Purchase
- The buyer typically assumes all of the company’s existing liabilities
and obligations, including debts, lawsuits, and contractual commitments.
-
Asset Purchase
- The buyer can choose which obligations they assume. They can choose to
take on specific liabilities, leaving others with the seller or the original company.
- Tax Implications
-
Stock Purchase
- In some jurisdictions, a stock purchase may result in fewer tax benefits
for the buyer because the company’s tax attributes (such as net
operating losses) usually remain with the company.
-
Asset Purchase
- An asset purchase may provide more favorable tax treatment for the buyer,
as they can allocate the purchase price to specific assets and potentially
benefit from depreciation and amortization deductions.
- Contracts and Agreements
-
Stock Purchase
- Existing contracts and agreements with third parties often remain in effect
in a stock purchase, with the new owner stepping into the shoes of the
previous owner.
-
Asset Purchase
- In an asset purchase, contracts and agreements typically need to be assigned
or renegotiated with third parties, as they may not automatically transfer
to the buyer.
- Employee Considerations
-
Stock Purchase
- Employees of the company usually remain with the company, as there is no
change in the employer’s legal entity. Employment contracts and
benefits often remain intact.
-
Asset Purchase
- In an asset purchase, the buyer can choose which employees to retain, and
may have more flexibility in modifying employment terms and conditions.
- Due Diligence
-
Stock Purchase
- Due diligence in a stock purchase primarily focuses on the financial and
legal aspects of the company as a whole, including potential hidden liabilities.
-
Asset Purchase
-
Due diligence in an asset purchase includes a detailed review of the specific
assets and liabilities being acquired, as well as an assessment of any
necessary assignments or consents for contracts.