Buying a Business: Purchasing Assets or Shares
We frequently receive questions regarding business law. Today we’re talking about buying a business. Got a question for the team at Winright?
Question: Should I purchase the assets of a business or the shares of a business?
You, as the buyer, need to be wary of what exactly you are buying and how you intend to do so. When purchasing an existing business, there are two ways of structuring the transaction. Buyers can either (i) purchase the assets of the business or (ii) purchase the shares of the business. The primary concern between the two is the liability attached to the acquired product.
Buyers can either (i) purchase the assets of the business or (ii) purchase the shares of the business. The primary concern between the two is the liability attached to the acquired product.
Share Purchase of a Business
In a share purchase, the buyer would acquire ownership in all the issued shares of the seller’s company, thereby being the owner of the seller’s company and all its assets and goodwill. However, the buyer would also inherit all the liabilities of the seller’s company too.
Asset Purchase of a Business
If the buyer knows that the seller has recently been having financial troubles, it may be safer to structure the transaction as an asset purchase. In an asset purchase, the buyer would only be acquiring ownership in the assets of the former business, not the liabilities of the seller’s company.
There are advantages and disadvantages to either transaction structure. Although the buyer may risk having undisclosed and contingent liabilities from a share purchase, it may be more tax beneficial to the seller and may be likely faster with less paperwork involved. Before making any agreements, it may be important for the buyer to do their due diligence, or retain lawyers who can do so for them.