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Stock Vs. Asset Sale Transaction Structure Considerations
ENLIGN DEAL TEAM | 02/07/2023
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.
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