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Asset Purchase v. Stock Purchase: What Difference Does It Make?

So, you want to buy a business, tune it up, increase its profit margin, and add some value to your life. The question is, how should you buy it? Should you have your attorney write up a stock purchase agreement, buy the business entity itself, and hang up some “New Management, Same Great Taste” signs? Or should your attorney put together an asset purchase agreement so that you can buy up all of the business’s worldly possessions, and start your own business entity with all the assets ready to go? Just like most things in life, this vital question has a short and frustrating answer: it depends.

A stock purchase acquisition transfers ownership of the business entity itself. In this case, the business continues to own the same assets, remains a valid party in any existing contracts it has already entered into, and retains the same liabilities it has already incurred. This arrangement can be very beneficial if you want to purchase a business exactly as it currently exists and continue its existence subject to all of the hard-won contracts and beneficial agreements that the business has already established. If your target business has been carefully and responsibly run so that it has a stockpile of beneficial ongoing contracts, all of the necessary licenses and permits required for its operation, no more than a few negligible liabilities, and some goodwill to boot, a stock purchase is likely the route you want to take.

However, depending on your specific circumstances, there may be plenty of good reasons to choose an asset purchase instead of a stock purchase. With an asset purchase, you will be acquiring the individual assets of the company, as well as the assumption only of agreed upon liabilities. One of the most compelling reasons to structure your purchase as an asset purchase is to avoid responsibility for any of the seller’s existing liabilities that you do not want to assume.

Additionally, an asset purchase agreement must clearly define the scope of what assets will be sold. In most asset purchase agreements, this includes all of the assets of the company, but it is still important to include a clear definition of what is being purchased. In this type of transaction, you may need to deal with transferring titles, drawing up bills of sale, or assignment of both property and contracts.

Another important issue to consider are any agreements the existing company has with its employees, as well as third-parties such as suppliers, IT specialists, or entities that have licensed or leased operating assets to the business. With an asset purchase, because the original entity itself is not being transferred, these agreements will need to be transferred, assigned, renegotiated, or even replaced. Furthermore, you may need to acquire governmental permits and rights to do business through transfer or reissuance from the appropriate government offices.

All of these moving parts and important considerations can quickly drown a seemingly simply purchase agreement deal in complexity. Partnering with experienced South Carolina attorneys gives you a local presence, expert knowledge of the intricacies of even the most complicated business acquisitions, and will help make this process as smooth and efficient as possible.

Our team works with you to be sure your transaction is appropriately handled under South Carolina law in an expert and efficient manner, so that you can serve your clients with excellence. Contact us today to discuss how we can assist you with your next South Carolina commercial deal.

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