Why you Should Purchase the Assets of a Company Rather than the Stock

One of the prob­lems that you may encounter when buy­ing a busi­ness in New York is under­stand­ing how to struc­ture the pur­chase.  Basi­cally, there are two ways that you can buy a company:

1. Asset Pur­chase;
2. Stock Pur­chase.

In most cases, you will be bet­ter off pur­chas­ing the assets. There are three big ben­e­fits to buy­ing the assets and not pur­chas­ing the stock:

• Tax ben­e­fits. With an asset pur­chase, you can give dif­fer­ent pur­chase prices among the var­i­ous pieces of the com­pany.  For exam­ple, cer­tain equip­ment can be deducted imme­di­ately so you may want to assign a greater price for those assets.
• You can choose not to acquire lia­bil­i­ties of the busi­ness you wish to buy. Per­haps the com­pany failed to pay a sup­plier for goods it ordered two years ago.  The statute of lim­i­ta­tions on a breach of con­tract law­suit is six years, so you could be hit with a law­suit four years after buy­ing the company.
• You don’t have to buy every asset of the cor­po­ra­tion. It could be in you best inter­est to buy only the prof­itable por­tions of the company.

Some­times you are not given the choice of how a busi­ness sale could be struc­tured.  Many busi­ness that are for sale require pur­chase of stock only for a vari­ety of rea­sons. For exam­ple, the seller may believe that there are tax advan­tages for sell­ing all the stock.  If you have to buy cor­po­rate stock, it is imper­a­tive to con­duct a thor­ough inves­ti­ga­tion of the corporation’s books and oth­er­fi­nan­cial deal­ings.  You can insert war­ranties and indem­ni­fi­ca­tion clauses in the stock pur­chase agree­ment. You may also be able to pur­chase insurance.

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