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Should You Buy Assets Or Stock When Buying A Business?

Stock Sale VS Asset Sale For Business Buyers

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.

Ron HottesAbout The Author:  Ron Hottes, is a Los Angeles based Business Broker. 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


Comments Regarding This Blog Post


While buying the assets of a small business corporation rather than the corporation itself has become the norm, as Ron Hottes points out there can be many real advantages to buying the corporation itself. What's needed is a creative team of business broker, CPA, and attorney to structure the deal to minimize the risks.
The biggest risk is that the buyer will somehow assume some uninsured hidden liability; but, there are ways around this; structuring the sale over time, escrowing purchase money and stock, using S-corp stock redemption provisions, etc. ... and, in the process, deferring the realization of capital gains (and the payment of capital gains tax) by the seller. But, the buyer needs a CPA/attorney/broker team that are experts in business transfer transactions ... and willing to call in additional expertise when needed.


  Helpful Resources To Assist In Selling And Buying California Businesses

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.

Michael Davidson, Business Broker - Southern California

Los Angeles Business Broker providing M&A quality services for Small Business Owners. We leverage our technology and expertise to Simplify & Expedite the Business Sales Process. Matching the right buyer with the right business is how we define success.

Jack Oh, Business Broker - LA, Orange Counties

Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.

William Park, Business Broker - Southern California

Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.


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