Stock versus Asset Purchase: What's the Difference? (2024)

FAQs

Stock versus Asset Purchase: What's the Difference? ›

An asset purchase involves the purchase of the selling company's assets. This includes facilities, vehicles, equipment, and stock or inventory. A stock purchase consists of purchasing the selling company's stock only.

Despite their simplicity, stock purchases come with some downsides. Buyers lose many of the tax benefits that they can claim in an asset purchase. In addition to all of the desired assets and liabilities of the company they're purchasing, they also assume ownership of all the unwanted assets and liabilities, as well.

An asset sale is the purchase of individual assets and liabilities, whereas a stock sale is the purchase of the owner's shares of a corporation.

An asset purchase involves just the assets of a company. In either format, determining what is being acquired is critical. This article focuses on some of the important categories of assets to consider in a business purchase: real estate, personal property, and intellectual property.

They are the two core methods for buying or selling a business. An asset purchase requires the sale of individual assets. A share purchase requires the purchase of 100 percent of the shares of a company, effectively transferring all of the company's assets and liabilities to the purchaser.

The main disadvantage is that an acquirer receives neither the “step-up” tax benefit nor the advantage of handpicking assets and liabilities. All assets and liabilities transfer at carrying value. The only way to get rid of unwanted liabilities is to create separate agreements wherein the target takes them back.

In an asset sale, buyers can pick and choose the assets they want to buy. They can take all of the business's assets or exclude some, and they don't have to take on any liabilities such as loan debts, provided, of course, that the seller agrees to the terms.

In a business acquisition, goodwill is recognized as an indefinite-lived intangible asset and tested for impairment. Goodwill is not recognized in an asset acquisition. Even if there is economic goodwill in the transaction, this amount is allocated to the assets acquired based on their relative fair values.

What is the purpose of asset purchase? ›

Asset purchases allow a buyer greater flexibility to pick and choose and largely avoid the risk of it acquiring unwanted liabilities.

In corporate asset purchase transactions, the selling party retains legal ownership over the entity, and the acquiring party buys individual assets of the corporation such as equipment, licenses, client lists and inventory.

A corporation can make an election to treat a qualifying stock purchase as an asset purchase for federal income tax purposes.

An asset sale occurs when a business sells all or a portion of its assets. The seller, or target company, in this type of deal, is still legally the owner of the company, but no longer owns the assets sold. In a stock sale, the buyer acquires equity from the target company's shareholders.

Asset purchase. What happens? The selling company's shares are sold and control of the company passes from seller to buyer. The buyer and seller agree which assets and or liabilities will transfer.

For the investor who purchases common stock, it represents an investment in the company and is therefore an asset for the investor. The value of the common stock can fluctuate over time based on the performance of the company and market conditions.

With an asset purchase, you will not take on all liabilities in the same way as a share purchase. You may pick and choose what assets you would like to acquire and will have more control over what you take from or what liabilities you assume of the existing business.

Cons. Complexity: Asset purchase acquisitions can be more complicated and time-consuming than stock purchase acquisitions because you're acquiring specific assets and not the whole company. This means you and the seller need to determine a fair value for each asset and liability and agree on the price for each.

Historically, the stock market experiences higher growth than the real estate market, making it a better way to grow your money. Stocks are more volatile than housing, making real estate a safer investment. Stock earnings are taxed as capital gains when realized. Stocks have no tangible value, whereas real estate does.

Asset sales are generally more favorable to buyers, and stock sales are more advantageous to sellers because of the way each is treated for tax purposes.