An asset sale is one of two ways that a business can be sold. It refers to the listing of all the assets included in the deal, as well as the value for each, so that the total of those values is the price at which the business sells. The other method involves the sale of the stock in the corporation that owns those assets. One way a corporate sale is described refers to the entity as a 'basket of assets' along with the basket itself.
The asset sale is preferable for most business buyers for three main reasons:
- Opportunity to choose among the assets the buyer feels are required to operate the business. Included will be tangible assets: equipment, fixtures, furniture, inventory of merchandise for resale; and intangibles, such as trade name, goodwill, leasehold interest, licenses and seller's covenant not to compete. The buyer's offer may omit, or event specifically exclude assets he or she does not want, for example equipment that is obsolete or not working, and inventory that is unlikely to be marketable.
- Ability to set values for the assets--usually negotiated as part of the agreement'provides the buyer the opportunity for depreciation of capital equipment and other assets that can be depreciated or amortized. These values that are paid by the buyer, are likely to be higher, meaning more dollar amounts for write offs, than the depreciated values shown on the books of the corporation.
- Ability to avoid acquisition of corporate liabilities, such as debt and legal problems affecting the corporation. By purchasing only assets, a buyer is deemed not responsible for debts, such as the accounts payables, or for liabilities arising from law suits or fines. These remain with the corporation and probably will be the responsibility of the seller.
There are occasions when a business buyer wants to become owner of the corporation rather than picking among its assets. In some cases, there may be contracts, licenses, permits or other important intangible assets owned by the corporation and non-transferable from the corporation. If it would be difficult for a buyer to obtain rights that are important for the successful operation of the business, the best strategy might be to take ownership of the corporation in order to have use of these valuable assets.