Joliet Business Purchase Lawyer: Pros & Cons of Different Methods to Purchase or Sell a Business

 Posted on January 23, 2023 in Business Law

When it comes to buying or selling a business, the seller and the buyer are both subject to a potentially complicated experience if the right method is not selected. To ensure minimal complications and less of a hassle for all parties involved, the buyer and seller must be aware of the different methods that can be used to buy or sell a business and select the method that best works for the situation at hand. In this instance, there are three different options to consider, an Asset Purchase, a Stock Purchase, and a Merger. Each has its advantages and disadvantages that may help make or break a deal. At Gateville Law Firm, we are Joliet Purchase and Franchise Business Attorneys serving Plainfield, Shorewood, Joliet, Crest Hill, and surrounding areas.

Asset Purchase Agreement in Joliet, Illinois

The first method to consider is an Asset Purchase Agreement. This type of agreement allows more freedom for the buyer side. This is because the Buyer can choose which assets, they want to buy out of the selling business, whether it be a few or the entire business. However, the Buyer must keep in mind that, whatever assets are being purchased out of the selling business will be accompanied by all liabilities associated with that particular asset. If the buyer does not purchase the entirety of the business, then any unsold assets and liabilities must be taken into consideration when the business is in the winding down phase of dissolution.

While the Buyer has the advantage of selecting which assets to purchase, there is a disadvantage in that the purchasing phase will be longer than in other types of business sales because all the assets and liabilities to be purchased must be considered and fully distributed before the sale goes through. Additionally, if the seller is looking to sell the entire business, an Asset Purchase Agreement may not be the best method of sale, since the Buyer is given the option to select which assets they want to purchase and are not required to buy the entire business. Without the entire business being sold, it will not automatically dissolve, and the seller must then wind down and dissolve the company after accounting for the assets and liabilities that are left.

Stock Purchase Agreement in Joliet, Illinois

An alternative method is a Stock Purchase. This occurs when the buyer either purchases the entire business or purchases the majority of the business’s voting shares. The biggest benefit for both the buyer and seller is that, with a Stock Purchase, the business legalities remain the same. This is good for the buyer because it results in a quicker transfer of ownership and does not cause as much disruption to the current practices of the business. For the seller, although the legalities are the same as before the sale, the seller is relieved from future liabilities as the controlling shares have been sold to the buyer.

The downfall of this method comes into play when the Buyer does not purchase all the shares of the business. To have a controlling share, the Buyer must only purchase a majority of the overall voting shares, which means there could be minority shareholders still owning a part of the business. If any of the minority shareholders contest the purchase of the business, likely, the sale will not go through. A key consideration for a Stock Purchase is how the shares are distributed. If there are multiple minority shareholders, a Stock Purchase would not be the recommended method for the sale and purchase of a business.

Merger

The third option for the purchase or sale of a business would be a Merger, which occurs when two independent companies are merged into one. A Merger can occur in two ways. First, one of the two independent companies can merge with the other independent company, so one of the independent companies will still be operational. The second way is if both independent companies are merged to create a new company. A merger encompasses the entire company and not certain assets, so a Merger does not require a list of assets and liabilities to be transferred.

Two disadvantages come with a Merger. If the Merger is resulting in one of the merged companies surviving the merger, then that surviving company will take on all liabilities of the merged company along with its assets. Liabilities must be discussed before the merger. The second disadvantage is that there must be majority shareholder approval to allow the merger to go through. If there is not a majority vote, the merger will not be able to happen.

Joliet Business Purchase & Sale Attorneys

The attorneys and staff at Gateville Law Firm, LLC have the knowledge to assist in selecting the best method for the purchase or sale of a business. We serve Joliet and the surrounding areas in Will County. To schedule a consultation to discuss the specific facts regarding your business purchase or sale and determine the method to best serve you, please give our office a call at 630-864-5788. We offer appointments in-person, via zoom, and the phone. We handle most of the purchase and sale of business purchases over the phone, via DocuSign, and virtually.