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.

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.