Assuming the company you wish to buy is organized as a corporation, you have a choice of buying the stock of the company from the company's shareholders, or buying all or some of the assets of the company from the corporation. The assets of a company are both tangible and intangible, and include such things as cash and accounts receivable, inventory, equipment, intellectual property, contractual rights, and goodwill.
Although you need legal and tax advice on this issue, and there are many other things to consider, here is a brief and very general comparison of the two alternatives. Each deal will be different, resulting in differing weights to each factor and possibly differing decisions as to whether you want to buy stock or assets. There are also a variety of creative ways to structure a transaction to "have your cake and eat it too", at least to some extent.
In general, the shareholders of a C-corporation will have a strong tax incentive to sell stock to avoid a double tax on the sale of the corporate assets; first at the corporate level and then at the shareholder level upon distribution of the proceeds of sale.
| Issue | C-Corporation Stock Sale | C-Corporation Asset Sale |
|---|---|---|
| Buyer's Taxes | Price goes to basis in stock | Asset basis can be stepped up and re-depreciated |
| Seller's Taxes | Taxed as Individual Capital Gain | Corporation Taxed on Gain Shareholders Taxed on Distrib |
| Working Capital (WC) | Usually included in price (Buying corporate balance sheet) | Often retained by Seller requiring Buyer to infuse WC |
| Contracts | May transfer with sale of stock | Will be severed and must be renegotiated by buyer |
| Liabilities (both known and unknown) | Transfer with stock Buyer becomes responsible | Remain with stock Buyer has no responsibility |
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Money Talk |
Investing in USA |