We are often asked about the differences between an asset purchase or stock purchase and which one is the better vehicle in a merger or acquisition? They are two completely different business acquisition strategies, and they are employed to accomplish differing objectives.
The primary difference is the extent of the liability that passes from the seller to the buyer, as well as the ability to continue existing government contracts and use of trade names and intellectual property. In reality, are you intending to purchase specific assets or the entire company?
Generally Speaking, What is an Asset Purchase in a Business Context?
In order to make the decision between an asset purchase or stock purchase we need to learn more about the nature of what it is you are attempting to do. Asset purchases are much more specific business contracts and business transactions, and are used to convey unique property, materials, real estate or even a corporate division from one business entity to another. Asset purchase contracts are used to acquire vehicles, fixtures, inventory, real estate, intellectual property and even specific customers or accounts receivable.
This is an effective option for purchasing a manufacturing facility, a fleet of vehicles or even a portion of business that is no longer a good fit for the parent company but enhances your own business model. Asset purchases limit your liability, but they also may limit what you are able to purchase. Minority shareholders can raise objections during these transactions and it will be important to draw upon the Watkins Firm and our 40 years of proven experience to make sure your transaction is thorough, legally enforceable and successful.
What is Stock Purchase Transaction?
In a stock purchase transaction you are buying the entire business, including all of its outstanding debts and liabilities. From a legal perspective, the buyer is “stepping into the shoes of the seller.”
This is especially important when the company has specific types of contracts that you wish to preserve, such as contracts with governmental agencies. There may be licensing and distribution agreements covering patents, trademarks, copyrighted materials or other intellectual property you wish to control, and this usually requires a stock purchase.
However, the buyer assumes all of the contingent risks associated with the existing business including any present or future legal disputes, and liabilities. There are protections that must be put into place, and these contracts must be carefully constructed and executed. Stock purchase transactions require thorough due diligence and a well conceived short and long term plan to ensure a smooth transition and the transfer of goodwill.
You’ll Need Proven, Battle-Tested Asset Purchase or Stock Purchase Contracts
It doesn’t matter if you are considering an asset purchase or stock purchase transaction. These are legally and financially complex business transactions. The deals are governed by an asset purchase contract or stock purchase agreement.
Ask about the Watkins Firm’s continuously updated proprietary contract library. We have represented clients in mergers and acquisitions transactions for more than 40 years. The success of these transactions is dependent upon a strong, clear, enforceable contract. The Watkins Firm has developed our own proprietary library of proven, battle-tested asset purchase and stock purchase agreements and supporting documentation such as due diligence checklists. Our clients appreciate the intangible but significant value our experience, legal skill and contracts bring to the table as they approach any M & A transaction.
If you are considering an acquisition, or have questions regarding an asset purchase or stock purchase
we invite you to review our podcast Episode 13 – Mergers and Acquisitions as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today. We will apply our more than four decades of experience and provide sound counsel and legal guidance as well as the documents and contracts needed to help you complete a successful acquisition and move your business objectives forward.
