Should You Buy Assets Or Stock When Buying A Business?

Many times when buying a business there are reasons why buying stock or buying assets is the better business decision. Ron Hottes, LA Area business broker explores the advantages and disadvantages from a business buyer's perspective.

Many times when buying a business there are reasons why buying stock or buying assets is the better business decision.

Let’s go through the advantages and disadvantages from a buyer’s perspective:

Advantages & Disadvantages of an Asset Sale from a Buyer’s Perspective

Advantages:

* No legal liability for the corporation prior to the purchase (but you will still be named in the lawsuit)
* No liabilities for employees
* Costs paid for the assets are depreciable (but taxable at time of purchase)
* "Clean" credit, reputation, workers comp, etc. (sometimes existing history is better)

Disadvantages:

* No established credit (many times vendors will put you on COD)
* Rehire the employees (typically they ask for raises)
* Negotiate transfer of leases & contracts (typically everyone wants more)
* New licenses
* Operating Capital

Advantages & Disadvantages of a Stock Sale from a Buyer’s Perspective

Advantages

* Established credit
* Many times, no or minimal operating capital required
* Leases are in place (if they are in the corporate name)
* Contracts are in place (if they are in the corporate name)
* Employees are in place with worker’s comp rate established
* Licenses are in place
* No public notification of the sale
* No sales tax on the FF&E
* No deposits required
* Corporation, tax & employment numbers & all documentation in place

Disadvantages

* Legal liability for the corporation prior to the purchase (Seller can indemnify & defend, if around)
* Assets are normally fully depreciated
* Sometimes stock is a hard sell to CPA’s & lawyers

There are always exceptions to all of the above but most of the time these advantages and disadvantages hold true.

About The Author:  Ron Hottes, with Business Team has a business brokerage team of 42 highly skilled and seasoned professionals with offices in Torrance, Woodland Hills and Newport Beach. Our business brokers have over 100 years of cumulative experience and the expertise to help you buy or sell a business in the Los Angeles County area. Reach him by phone at 310-539-8300

Categories: BizBen Blog Contributor, Buying A Business, Deal And Escrow Issues, How To Buy A Business