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Stock Vs. Asset Sale Transaction Structure Considerations

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Jeff Snell | 02/07/2023

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Welcome to another edition of ENLIGN Advisors transaction topics. Thank you for joining us as we investigate stock versus asset transaction structures.

In this short video we'll cover the key considerations when choosing a business sale structure and the pro's and con's of each.Almost all US transactions in the mainstreet and lower middle market are structured as asset sales.

Almost all US transactions in the mainstreet and lower middle market are structured as asset sales. Some exceptions are when only a portion of the business is being sold,

situations where there are business contracts that cannot be transferred (such as GSA) or when there are off-shore holdings. The businesses legal entity type can also be a factor.

The pros and cons of each type to buyers and sellers fall into two categories; liability and taxation.

In a stock sale, the buyer is "stepping into the shoes" of the seller and assuming all undisclosed known and unknown liabilities of the company unless specifically indemnified.

In an asset sale the buyer is only assuming liabilities expressly stated in the asset purchase agreement.

In a stock sale the buyer cannot write up the value of the assets for tax purposes as they are "stepping into the shoes" of the seller and assuming their existing depreciation schedule.

In an asset sale the buyer is able to ‘write up’ the assets to their allocated purchase price in the definitive purchase agreement and depreciate them again.

Since buyers don't want to assume liabilities for actions of the seller and want to be able to depreciate the purchased assets based on their actual allocated purchase price essentially all US based mainstreet and lower middle market transactions are structured as asset sales.

To learn more visit our website's blog page where you can find hundreds of helpful and insightful industry articles and white papers.

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Remember to also subscribe to the ENLIGN YouTube channel. Thank you for watching!

We look forward to seeing you on the next edition of ENLIGN Advisors Transaction Topics.

Copyright: ENLIGN Business Brokers, Inc. 2023


This blog was originally written by Jeff Snell, LMCBI, M&AMI, CM&AP, ABI. Jeff is the founder and principal broker of ENLIGN Business Brokers and Advisors (www.enlign.com), headquartered in Raleigh, NC. For over 20 years, ENLIGN has been providing business brokerage and M&A transaction services to main street and lower middle market business owners across the United States via the Atlas Alliance. He can be contacted at (919) 624-1124 or jsnell@enlign.com.