Asset Sales and Stock Sales: Know the Difference

The decision to sell your business is a big one. But once it’s made, you may think the decision-making is over. It isn’t. That’s because in addition to the decision whether or not to sell your business, you then need to decide what part of your business to sell.

There are really three things that you can sell when it comes to selling your business. You can sell the shares (or ownership interest), you can sell the assets, or you can sell both. Understanding the ramifications of selling assets or shares can be important—you don’t want to sell more or less than what you want to.

Selling Shares or Ownership

Many people think selling assets necessarily includes shares or ownership, and vice versa, that selling shares or ownership includes the sale of the business’ assets, but that isn’t necessarily true.

Selling your shares or ownership interest only will make the buyer the legal owner, but that’s about all it will do. It won’t transfer any of the business’ property, accounts receivable, intellectual property, machinery—basically, just the right to own the business and continue to run it.

Most buyers don’t want just a purchase of a business’ ownership, for that reason, but whether you are a buyer or seller, it is important to know what just a simple stock purchase will and will not provide to you.

Selling the Assets

You can do the opposite and just sell the assets. This can still be valuable to the buyer, especially if he or she already has an established business, and could just use your business’ machinery, customer lists, technology, or whatever other assets that you may have.

But with a straight asset sale, the buyer won’t be the new owner of your business. The buyer will simply have “more stuff” (albeit potentially valuable stuff) than they had prior to the sale.

The sale of assets can make the transaction more complex, given that all the assets have to be accounted for, evaluated, inventoried, and included in the sale. Just transferring the stock or ownership of the business is solely a paperwork transaction.

Looking at Contracts

Whichever one you choose, the seller’s business contracts may need to be evaluated. Some contracts may put you, as the buyer, in default simply because ownership of the company changed hands—something that wouldn’t happen if just the assets of the company are sold.

Individual contracts, like for machinery or loans for purchase orders, may be more affected by an asset sale, as the transaction involves a change of ownership of individual items. Whereas a stock transfer would automatically transfer those business contracts.

Selling All of It

You do have the option of a sale of all of the business—usually done as a stock sale, that includes the assets of the company. This is, of course, a more complete solution, and is what people mostly think of when talking about selling a business.

But if you do want to separate assets and ownership, speak to a good business attorney before structuring the sale of your business.

Buying or selling a business? Call the West Palm Beach business litigation lawyers at Pike & Lustig today to help your business contracts and corporate transactions.

Sources:

investopedia.com/terms/a/asset-sales.asp#:~:text=Key%20Takeaways,liabilities%20in%20an%20asset%20sale.

marinercapitaladvisors.com/resources/asset-sale-vs-stock-sale-whats-the-difference/