An asset sale is the purchase of individual assets and liabilities, while a share sale is the purchase of the owner`s shares in a corporation. While there are many considerations when negotiating the nature of the transaction, the tax implications and potential liabilities are the main concerns. The sale of assets versus the sale of shares is one of the most important decisions a buyer must make when buying a business.3 min Read In an asset sale, the seller remains the legal owner of the company, while the buyer acquires individual assets of the company such as equipment, licenses, goodwill impairmentA goodwill impairment occurs, if the value of goodwill on a company`s balance sheet exceeds the book value audited by the auditors. which leads to depreciation or depreciation. In accordance with accounting standards, goodwill is recognised as an asset and measured annually. Companies should assess whether there is a depreciation, customer lists and inventory. There are situations where a sale of shares makes more sense than the purchase of assets. Some of the disadvantages of buying assets are: If you are considering selling your business (see also Preparing for a Merger and Acquisition Exit and Negotiating a Term Sheet), you should carefully consider the best way to structure the sale. Below is a brief introduction to some of the pros and cons of the most common acquisition structures: mergers, stock sales, and asset sales. Buyers generally prefer the asset sale structure because the buyer receives an increase in the selling company`s depreciable assets under IRS regulations. This means that the price paid for the asset is the new tax base for the property. The buyer can increase its tax deductions for (1) depreciation by assigning a higher value to assets that depreciate quickly, and (2) depreciation by assigning lower values to assets that pay for themselves slowly, such as goodwill. Ultimately, the increase reduces tax liability faster and improves the company`s cash flow in the early years, when cash flow is greatest.
Not surprisingly, this issue can be contentious because of the benefits and costs associated with the outcome. Another reason why buyers prefer to sell assets is that they can choose the liabilities they will assume if necessary. Contingent liabilities such as contractual disputes, product warranty issues or employee lawsuits are of particular concern. Buyers may also choose not to purchase certain assets (for example.B. claims that they deem likely to be uncollectible). A potential obstacle for buyers when selling assets is the transfer of certain assets (para. B example, intellectual property, contracts, leases, permits), which may raise questions about transferability, legal ownership and consent of a third party. The time it takes to obtain consents and resubmit applications for approval often delays the transaction process. In the case of an asset purchase, the buyer has control over the liabilities associated with the purchase of the company, and under the purchase agreement, he may refuse to accept responsibility for undisclosed or unknown debts. Buyers also have control over the assets included in the sale. For example, since these are claims, the buyer may refuse to include them in the sale price if he believes that they have no value due to unsuccessful recovery attempts.
In a merger, two companies that are different legal entities are consolidated into a single legal entity that holds the combined assets and liabilities of the original companies. In the most common type of merger, a “reverse triangular merger”, a buyer establishes a wholly-owned subsidiary (a “merger subsidiary”). At closing, the shares of your company`s shareholders are cancelled in exchange for “merger consideration”, usually in cash or shares issued by the buyer. The merger passes into your business and ceases to exist as a separate entity, and your company “survives” – now as a wholly-owned subsidiary of the buyer. Seller`s view For sellers, the sale of assets generates higher taxes because intangible assets such as goodwill are taxed at the capital gains rate, while other “hard” assets may be subject to higher normal tax rates. Federal capital gains rates are currently 20% and state rates vary (Missouri is currently at 6% and Kansas at 6.45%). Normal income tax rates depend on the seller`s tax bracket. This article is not intended to be legal and/or tax advice. Every business transaction is unique, and buyers and sellers should always consult with the appropriate professionals (lawyers and accountants) when considering a business sale structure. Buying assets is less risky for the buyer.
When buying assets, the buyer selects the specific assets he will acquire and the liabilities that the seller will assume. This selection process limits the buyer`s risk, but forces the seller to pay more taxes. With a share purchase, a seller`s tax costs are lower, but the buyer takes more risks – known and unknown related to the seller`s assets and liabilities – but this risk can be offset by careful structuring. Take the time to carefully consider your options before deciding how you want to structure your transaction. Work from the beginning with a trusted investment banker, lawyer and CPA to fully understand which option will give you the desired result. Through a sale of shares, the buyer acquires the shares of the selling shareholders directly and thus acquires ownership of the seller`s legal entity. Actual assets and liabilities acquired through a share sale tend to be similar to those from an asset sale. Assets and liabilities that are not desired by the buyer are distributed or repaid before the sale. Unlike an asset sale, stock sales do not require many separate transfers of each individual asset because the security of each asset is within the company. Not all types of corporations are eligible for a share sale. A sole proprietorship, partnership or LLC does not issue shares.
When selling this type of business, the buyer acquires the entire stake. Only companies C and S have to choose whether they want to sell assets versus stocks. When NetApp acquired Engenio from LSI, it was an asset sale. The press release gives you an indication of this by describing the purchase price not in terms of shares, but as a total amount: When Microsoft acquired LinkedIn on June 13, 2016, Microsoft bought LinkedIn shares with its cash. .