If you own a Connecticut business and wish to sell it, or want to buy one, you have options. Most of these business transactions are done by way of an asset or stock sale. There are benefits to both, depending on the type of business and which party you are. Before making a decision either way, consult an experienced Connecticut business law attorney. Aeton Law Partners is ready to advise you and help you complete the deal.
What to know about asset sale versus stock sale
An asset sale is when a company sells off its assets. Those assets may include physical items like machines, equipment, inventory, and vehicles. But it could also include intangible assets. Some examples are licenses and intellectual property rights. The company sells what it owns to the buyer, and the buyer becomes the new company owner.
Meanwhile, a stock (or equity) sale involves buying the owner’s shares in the company. What this does is transfer ownership of the seller’s equity to the buyer. This accomplishes the sale of the business.
Which type of sale/purchase is best?
You should know about certain limits to these two methods of buying and selling a business. For example, sole proprietorships and partnerships don’t issue stock. So an asset sale is probably going to be the way these companies are sold. Limited liability companies don’t issue stock either. But ownership of the LLC interest can be transferred, and it’s similar to a stock sale.
Corporations issue stock, so they can use either an asset or stock sale. The buyer and seller will need to decide which method is best for their deal. A Connecticut business law attorney can advise you on the legal aspects of the transaction.
How both methods benefit buyer and seller
Buyers tend to benefit from asset sales, for a number of reasons. For example:
- Tax treatment: The assets the buyer purchases will be valued as of the date acquired. This allows a stepped-up cost basis, advantageous to the buyer should it decide to later sell the assets. The tax treatment for the seller is less beneficial.
- Debt obligations: Long-term debt obligations for assets are usually the seller’s responsibility.
- Reduced liability: The buyer can typically determine which liabilities to assume in an asset purchase. Some liabilities, like product liabilities and contract disputes, are usually excluded.
Conversely, stock sales tend to benefit the seller. Here are a few reasons:
- Taxes: The seller of equity pays a lower capital gains tax rate versus ordinary income tax.
- Liability: In general, selling stock releases the seller from associated liabilities of the company. Unless this is otherwise excluded from the deal, the buyer takes the risk.
- Insurance issues: The buyer will be the party to keep insurance ratings for liability, workers’ compensation, and unemployment. If those ratings are poor, the seller is not responsible anyway.
Talk To Us When You’re Ready To Buy Or Sell Your Business
Every business purchase is different. It’s important to consult a knowledgeable Connecticut business lawyer before executing your deal. If you’re in the market to acquire or sell a business, let Aeton Law Partners work with you. We can help you each step of the way, with all aspects of the transaction. Give us a call today.