Asset sales are business transactions where a buyer purchases some or all of the assets from a company, but the company itself does not change hands. A business’s assets include anything of value owned by the company. Some examples of these assets include real estate, equipment, and intellectual property.
With an asset sale, buyers have the ability to pick and choose which assets they purchase, which allows them to carry less risk and potentially leave any debt to be paid by the seller. However, business owners must consider many aspects of the asset sale structure before purchasing or selling assets.
The Pros and Cons of an Asset Sale Structure For Buyers
While there are many reasons for entrepreneurs to choose an asset sale structure over a stock sale or a merger, it is essential to understand the advantages and disadvantages. Here are a few types of opportunities and obstacles you may encounter when using the asset sale structure:
An asset sale holds the following advantages for buyers.
- Pick which assets you purchase: Buyers can choose which part of a business’s operation they want to acquire. If a segment of the business does not meet the investment objectives, the buyer does not need to include that asset in the purchase.
- Fewer costly liabilities: Some sellers may have liability exposures that can hurt revenue and profitability. With proper legal assistance, an asset sale can be designed to exclude these unwanted liabilities.
- Increased tax basis: Because market value is often higher than the depreciated book value of the assets, an asset sale has the effect of resetting the book value for the buyer to the current market price paid in the acquisition. This is more favorable than the carryover basis that would exist in a stock sale.
- Select specific employees: When a buyer purchases a business in an asset sale, they start fresh and may decide which employees will meet their business needs. If they let some workers go, the decision will not impact the unemployment insurance rate of the company.
Using the asset sale structure allows buyers to have full disclosure on what they are purchasing and how the transaction will impact and change their current business goals.
With any business transaction structure, there are a few disadvantages buyers will need to understand before going into the negotiation process, including:
- Might take longer to close an asset sale. Depending on the type and number of assets the buyer is purchasing, it may take longer to close the transaction, as negotiations are complex and may require more time.
- Could involve more paperwork. If you’re dealing with assets that have titles, liens, or that are fixtures, the paperwork to deal with them is likely to be more complicated than a simple stock sale.
- Could require assets to be moved. There may be additional logistical considerations that need to be prepared if assets need to be relocated, either physically or legally.
Understanding the strengths and weaknesses of the asset sale structure will help you better prepare for your business transaction and determine whether you want to purchase assets in this manner.
Contact a Highly-Qualified Business Lawyer at Cardon Law Today
Business transactions are often gateways into new markets, partnerships, and various other growth opportunities. However, there are many processes and complex needs that individuals may encounter while doing an asset sale. Seeking legal guidance and advice with Cardon Law will allow you to make the best decisions for you and your company.
With 17 years of experience in business law and an entrepreneurial background, Jeffrey Cardon has extensive knowledge on growing businesses and the legal complications that may stand in the way. You will feel confident in your decisions and legal representation when you work with our team.