If the company in question has a large number of copyrights or patents, or if it has state contracts or large and difficult-to-sell companies, the sale of shares may be the best option, as it is the business, not the owner, that retains ownership. If a company depends on certain large suppliers or customers, a share sale can reduce the risk of losing those contracts. When structuring the sale of a business activity, the transaction can be set up in two ways: the purchase and sale of the company`s assets, or the purchase and sale of company shares. The purchaser buys the target`s stock and takes the objective as it is found, both in terms of assets and liabilities. Most contracts that have a purpose – such as leasing and permits – are automatically transferred to the new owner. For all these reasons, it is often easier to go with a stock purchase than with a purchase of assets. Despite their simplicity, stock purchases come with some drawbacks. Buyers lose a lot of the tax advantages they can claim when buying assets. In addition to all the desired assets and liabilities of the company they purchase, they also take possession of all undesirable assets and liabilities.
There is also the potential for challenges with minority shareholders or shareholders who may not have to sell. In a merger or acquisition transaction, asset purchase agreements have a number of advantages and disadvantages in relation to the use of a share purchase agreement or a merger agreement. In the event of a share acquisition or merger, the buyer receives all the assets of the target, without exception, but also automatically assumes all the liabilities of the target. An asset acquisition contract not only allows a transaction that transfers only a portion of the assets (which is sometimes desired), but also allows the parties to negotiate what liabilities of the target are explicitly borne by the buyer and allows the buyer to leave behind liabilities that he does not want (or does not know). One of the drawbacks of an asset sale contract is that it can often result in more control changes. For example, contracts entered into by a target company and acquired by a buyer often require consideration in an asset contract, when it is less common for such consent to be required in the context of a share sale or merger agreement. A share purchase agreement (SPA) is a joint M-A contract that accepts control of another company by purchasing all or the majority of the shares of another company. The company`s legal entity remains intact, as do all contracts, assets, partnerships, delivery contracts and important elements of the business. Control passes to the buyer. A SPA determines how many shares are acquired and (in cases where all shares are not transferred into the sale) what type of control the buyer gains after the transaction is completed. Under the IRS guidelines, asset sales allow buyers to “strengthen” the company`s depreciable base in its assets. By assigning higher value to assets that devalue quickly (such as devices that typically have a lifespan of 3 to 7 years) and by assigning lower values to slow-amortizing assets (such as Goodwill, which has a 15-year lifespan), the purchaser can benefit from additional tax benefits.
This reduces taxes earlier and improves the company`s cash flow in the first decisive years. In addition, buyers prefer the sale of assets because they avoid inheriting potential debts, such as potential liabilities in the form of product liability, contractual litigation, product guarantee issues or staff lawsuits. In the case of a share sale, the sales contract does not describe the specific assets and liabilities of the transaction to be acquired, since all of the company`s assets and liabilities are transferred to the buyer at the same time as the acquired business.