Small Business Stock Purchase Versus Purchasing the Small Business Assets

When deciding to purchase an existing small business, it is necessary to assess what you hope to achieve in transaction, and to determine whether to purchase only the assets of the small business, or the business’ assets and issued stock.  Asset purchases solely involve purchasing another company's assets (vehicles, equipment, facilities, and stock or inventory), whereas a stock purchase involves the purchase of a company's assets and stock - all of the outstanding shares of stock of the business are transferred from the seller to the buyer.

Advantages of an asset purchase compared to a stock purchase are having the ability to choose which liabilities to include in the acquisition, and avoiding problems with minority shareholders who do not wish to sell their stock.  Some disadvantages include having to re-title all acquired inventory and stock, whereas in a stock purchase this isn’t necessary; and, stock transactions are normally less complicated with companies with smaller numbers of shareholders.

Sellers usually prefer a stock purchase because it allows them to completely walk away, free from any future obligations with respect to the small business.  Any liabilities attached to the stock will generally pass on to the new owner(s).  However, buyers usually prefer an asset purchase, allowing the ability to choose which assets and liabilities to include in the transaction.  Conversely, purchasers generally prefer an asset purchase because of usually being shielded from any liabilities attached to the stock.

Other factors like realization of a gain or loss on the sellers side due to the purchase price and current stock value, as well as depreciation for the buyer should also be carefully considered when weighing the differences between and asset purchase and a stock purchase. For help with questions about purchasing small business stock or assets, please contact us.