Business Acquisitions - Considerations for Buying or Selling a Business

 Posted on November 22, 2022 in Business Law

Purchasing or selling a business can be a complex and often overwhelming experience, both for the buyer and seller. There are various aspects that need to be considered, as well as careful consideration and disclosure of all potential liabilities that may surface. When buying or selling a business, there are different ways to go about the sale, but the three most common ways of acquiring a business are through either a stock purchase, an asset purchase, or a merger. It is important to know what each option entails to ensure the correct procedure is chosen to benefit both the buyer and seller in the sale of a business.

Stock Purchase Agreement

A stock purchase takes place when the buyer purchases either all or a controlling majority of the selling company’s voting shares. Under a stock purchase, the legalities of the selling company, such as the name, managing operations, and procedures will remain the same unless these legalities were previously discussed in the Stock Purchase Agreement. This means there are significant advantages for both the seller and the buyer. By releasing the controlling majority of voting shares to the buying company, the selling company is released from the liabilities that may occur. The buyer benefits from a stock purchase because the legalities remain the same, which results in less disruption to the business and a more efficient transfer of control.

While there are benefits to a stock purchase, there are some disadvantages that need to be considered as well, particularly for the buyer. Under this approach, the buyer does not need to buy all voting shares to gain control of the company, they only need a controlling majority of shares. This means that, if the buyer does not acquire 100% of the voting shares, the buyer must go against the minority shareholders that still have a voting stake in the company. If one of these minority shareholders opposes the purchase, then the transaction will likely not go through. If the selling company is not a closely held corporation, or if the selling company has multiple minority shareholders, it is likely that a stock purchase is not the best decision for buying and/or selling the business.

Asset Purchase Agreement

An asset purchase can be intriguing to buyers, as the buyer is given more freedom. In this type of business purchase, the buyer has the option to buy some or all of the assets within the selling company. These assets can include things such as contracts or intellectual property rights. Any assets that are purchased by the buyer will also include liabilities previously associated with them. Any assets not purchased by the buyer will stay with the seller and must be accounted for in the winding down of the business, including any liabilities associated with the unsold assets.

The disadvantages of this type of purchase are that it can be time consuming if the buyer is only purchasing a portion of the assets. The lengthy timeframe is since all assets (and the accompanying liabilities) must be distributed before the sale goes through. If contracts are involved, third party consent may also be required since the party to a contract is changing, and stockholder approval may be necessary if the majority of assets are being sold. Also, an asset purchase may not be the most enticing option for sellers who are wishing the sell the entire company. The sale of assets does not automatically dissolve the company, because the selling company must account for any unsold assets and liabilities that the buyer did not purchase.

Merger

A third option would be a merger. A merger occurs when two separate companies come together into a single company. A merger can result in either one of the two separate companies becoming the merged company, or a new company is created as a result of the merger. The main benefit of a merger is that it is simpler than both a stock and asset purchase. Since the entire company merges, there is no need to specifically lay out the assets that are being transferred.

The downfall about a merger depends heavily on who the surviving entity is. If the surviving entity is one of the merged companies, they will take the dissolving company’s assets, along with all of its liabilities as well. Also, majority shareholder approval is necessary, which means that, if too many shareholders are against the merger, it cannot occur.

Business Attorneys Near You: Naperville and Yorkville (Illinois)

When considering your options in the purchase or sale of a business, it is imperative to obtain advice from a seasoned attorney with experience in this area. At Gateville Law Firm, LLC, our attorneys, and staff have the knowledge to assist you in making the best decision for your business. To learn more about these options and to schedule a consultation, please call our office at 630-780-1034 or email us at the link attached.

We serve a wide geographic radius from Naperville, Lisle, Bolingbrook, Romeoville, Plainfield, Joliet, Oswego, Yorkville, Kendall County, DuPage County, Will County, Aurora, Montgomery, Warrenville, Glen Ellyn, Wheaton, Montgomery, Sandwich, Somonauk, Geneva, St. Charles, and surrounding areas.