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Comparing an asset purchase contract to a stock purchase contract

On Behalf of | Mar 5, 2019 | business law, Firm News |

Buying or selling a Baton Rouge business can be unexpectedly tricky. Many questions must be answered for both the buyer and seller. This post will not attempt to answer or even raise all potential questions; instead, the major questions involved in the two most frequently used sales contracts will be explained.

After an owner decides to sell all or a portion of their business, they must first address the price. The price can be determined by the owner or by retaining a business appraiser. The actual price will, of course, be determined by negotiations between the seller and the buyer. The second – and perhaps more important – question is the structure of the sale.

The sale of a business may be accomplished in one of two ways: selling all or a controlling portion of the outstanding stock or selling the assets of the business. In a stock purchase transaction, the only property that is sold and purchased is shares in the corporation. In most cases, the interest being sold comprises all the corporation’s stock or a controlling interest in the stock. This type of sale transfers the business entity to the new owner. Most stock transfer sales also transfer the corporation’s debts and intellectual property to the new owner. Special provisions may require the seller to either guarantee the entity’s obligations or pay them prior to the sale.

In an asset sale, the buyer purchases only the specific assets that are used in the portion of the business that is being sold. The seller usually retains the outstanding debts and accounts receivable; the buyer acquires only specifically identified assets. Title to intellectual property is usually resolved by negotiation.

Either type of agreement can have many moving parts. The advice of an experienced business law attorney may prove to be very helpful to make certain all relevant issues are addressed in the written agreement before it is executed.