If you are contemplating selling your business, one of the most important considerations is whether to structure the sale as a stock or asset deal.  Most public company acquisitions are on a stock basis.  However, privately held company transactions can be either stock or assets sales.  Deal structure can be highly important as the advantages for one side can create disadvantages for the other side. 

Generally, a seller typically favors a stock deal and a buyer typically favors an asset deal.  All transactions are different, so facts and circumstances should be analyzed fully with tax and legal counsel.  Here are some advantages and disadvantages to a buyer and seller in an asset sale. 

Buyer Advantages:

·         Tax basis of assets acquired is fair market value. 

·         Price paid is deducted, amortized, or depreciated. 

·         Buyer can choose the business structure or form.

·         Selected assets are bought and liabilities assumed. 

·         More debt and equity structuring flexibility.

·         Less exposure to contingent liabilities. 

Buyer Disadvantages:

·         Buyer usually can’t use seller’s tax accounting methods – problem if assets on books are worth more than fair market value.

·         The Buyer may desire to keep certain contract rights.

·         May get a step-down in basis if there is bargain purchase.

·         C and reorganizations may limit basis step-up.

·         Built-in capital gains tax for certain S-corporations.

Seller Advantages:

·         Less warranty exposure obligation to the buyer. 

·         If no built-in capital gains tax, the buyer gets more flexibility often with little cost to the seller. 

·         Easier to retain selected or non-operating assets. 

·         Seller may keep some tangible or intangible assets.

·         Gives the buyer greater flexibility in structuring the transaction.  

Seller Disadvantages:

·         C corporation or recently converted S corporation and double taxation.   

·         If the company is a C or S corporation with built-in capital gains tax exposure, can be double tax cuts for seller.

·         Buyer may underpay for unwanted assets.

Contract rights may not be easily transferred.

If you are contemplating selling your business, one of the most important considerations is whether to structure the sale as a stock or asset deal.  Most public company acquisitions are on a stock basis.  However, privately held companies are frequently either stock or assets sales.  Deal structure can be highly important as the advantages for one side can create disadvantages for the other side. 

Generally, a seller typically favors a stock deal and a buyer typically favors an asset deal.  All transactions are different, so facts and circumstances should be analyzed fully with tax and legal counsel.  Here are some advantages and disadvantages to a buyer and seller in a stock sale. 

Buyer Advantages:

·         Some stock transactions are not taxable, but all asset transactions are taxable. 

·         Less time consuming and costly than an asset transaction. 

Buyer Disadvantages:

·         No basis step-up to buyer (unless Section 338 is elected).

·         The buyer pays with after-tax dollars. 

·         If an individual, the financing is outside the company.

·         Tax attributes generally carry over, but there can be net operating loss implications.

·         Contracts continue in full force and effect - this can be positive or negative for the buyer. 

·         May acquire unwanted assets and liabilities. 

Seller Advantages:

·         Buyer acquires company subject to all liabilities.

·         Seller wants lower long-term capital gains. 

·         Some stock sales can qualify for ESOP or reorganization treatment. 

·         All assets are sold – no need to divest unwanted items. 

Seller Disadvantages:

·         Seller’s warranties and guarantees are broader. 

·         If seller financed, collateralization is more difficult.

·         Difficult for seller to hold back assets. 

·         If there are net operating losses, they can’t be used to offset other income.