Difference Between Asset Purchase vs Stock Purchase
When an investor is looking to buy any business or an owner is looking to sell a business there are primarily two ways of doing it, the transaction can be done as purchase and sale of the company’s stock or purchase and sale of the company’s asset.
A buyer of the assets or stock also known as Acquirer and the seller of these assets and stock also known as Target may have their own reason for preferring the type
When an acquisition is asset type the transaction is valued as the total of the sale of all individual assets net of all the liabilities. While when a transaction is considered as a Stock transaction the acquisition results in the transfer of ownership and the entity still owns and holds its assets and liabilities
Head To Head Comparison Between Asset Purchase vs Stock Purchase (Infographics)
Below is the top 8 difference between Asset Purchase vs Stock Purchase
Key Differences Between Asset Purchase vs Stock Purchase
Both Asset Purchase vs Stock Purchase are popular choices in the market; let us discuss some of the major Difference Between Asset Purchase vs Stock Purchase
- In an Asset, transaction buyer buys the assets and liabilities. However, the buys have the option to carve out the liabilities which it does want. On the other hand, in the case of a stock purchase, the buyer buys the entire entity and hence accepts all the assets and liabilities
- Since the asset transaction has limited exposure to the company there is less risk involved and in case of stock entity the buyer accepts all the risk as it buys the entire entity
- In an Asset purchase, if the buyers purchase assets that are highly depreciable, they have the option of stepping up the tax value of those assets and amortize them. If goodwill is involved it can also be amortized. In this manner, the buyers get the tax Stock purchases to buy, the entire company and therefore has no option of amortizing assets and lose the option of availing the tax benefit like asset purchase
- Asset Purchase is considered as complex since it involves retitling all the assets which are not in case of stock purchase and makes the process simple. Assume a company which owns 1000 trucks is acquired, in case of asset purchase all these trucks will have to be renamed and hence makes the stock purchase simpler than asset purchase
- Asset purchase does not have any tax implications while stock purchase requires permission from the state and federal securities and has to comply with the laws and regulations
- Asset Purchase does not involve any minority shareholders. Minority interest can create a problem for stock purchases if they refuse to sell the shares
- Buyers usually prefer asset purchase since it allows them to select the liabilities and gives them flexibility and sellers usually prefer stock purchase because it lets them step away from the business completely
- Asset Purchase advantages over stock purchase include tax advantage, flexibility on choosing assets and employees, less risk and due diligence, less role of minority shareholders.
- Disadvantages of asset purchase overstockqa22wz purchase include retitling of assets seller has to liquidate the remaining assets
- Advantages of stock purchase over asset purchase are that the buyer does not have to bother about revaluating assets, buyers can avoid paying taxes, simplicity
- Disadvantages of stock purchase over asset purchase include that the acquisition does not receive the step up tax benefit nor the flexibility, assets and liability have the carrying value, a lot of laws and regulations to be followed and goodwill is not taxed deductible
Asset Purchase vs Stock Purchase Comparison Table
Below is the 8 topmost comparison between Asset Purchase vs Stock Purchase
|
The Basis Of Comparison Between Asset Purchase vs Stock Purchase |
Asset Purchase |
Stock Purchase |
| Risk | Buyer agrees to but specific assets and liabilities and takes the risk of only those assets and liabilities. | In a Stock purchase, the buyer purchases the entire entity and hence has the risk of the entire company |
| Assets | In an asset purchase, it is necessary to rename or retitle the target company’s assets in the name of the buyer | Retitling of assets is not required in a Stock Purchase |
| Liabilities | The buyer has the option to specify the liabilities it wants to assume | The buyer purchases the company irrespective of the liabilities |
| Minority Shareholders | Asset Purchase does not involve any minority shareholders | Minority interest can create a problem for stock purchases if they refuse to sell the shares |
| Laws | Asset Purchase does not have to comply with any laws and hence is simpler | Stock purchase requires permission from the state and federal securities and has to comply with the laws and regulations |
| Tax implications | In an Asset purchase, if the buyers purchase assets that are highly depreciable, they have the option of stepping up the tax value of those assets and amortize them. If goodwill is involved it can also be amortized. In this manner, the buyers get a tax advantage | Stock purchases buy the entire company and therefore has no option of amortizing assets and lose the option of availing the tax benefit like asset purchase |
| Preference | Buyers usually prefer asset purchase since it allows them to select the liabilities and gives them flexibility | Sellers usually prefer stock purchase because it lets them step away from the business completely |
| Simplicity | Asset transactions are usually considered more complex than purchase as it involves renaming all the assets purchased | Stock purchase buys the entire entity and does include any renaming and hence is very simple to implement |
Conclusion
While deciding on which transaction to choose it is necessary to weigh the pros and cons in terms of the procedure, laws, price and tax implications.
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Asset purchase can be advantageous for some while dangerous for others. On one hand, they help the sellers who can quote a higher price for the asset and help the buyer who can limit his exposure to various types of unwanted liabilities.
They can, however, be a disadvantage to the sellers as they will now have to plan to liquidate the assets that are not purchased.
Stock sale can help in preventing double taxation since it is taxed at a lower capital gain tax. If the seller of the company wishes to liquidate the entire entity and all the liabilities and contracts then stock acquisition is the best option
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