Our Business Transactions Practice

I am buying or selling a business. Should the transaction be a stock sale or an asset sale?

One key difference between a stock sale and an asset sale is that, when a corporation’s stock is sold, all liabilities of that corporation remain with the corporation. By contrast, where one corporation purchases the assets of another, the buyer does not assume the debts and liabilities of the seller absent an implied or express agreement, fraud, or other limited circumstances.

Whether it is better for a seller or buyer to enter into a stock sale or asset sale is dependent on the circumstances. With respect to an asset sale, it is an advantage to the buyer not to incur the seller’s liability, especially when potential liability is unknown. On the other hand, purchasing assets is usually more time consuming and complicated and may require the buyer to establish new credit with vendors, hire employees, obtain new licenses, and obtain assignments of multiple contracts and leases. From a seller’s perspective, it is usually more advantageous to enter into a stock sale.

Is it beneficial to have a lawyer help me with a contract?

Yes. Whether it is a contract for services or a contract for the purchase/sale of assets or goods, well-drafted, attorney-prepared contracts are highly advisable. This is because written contracts set out each party’s duties, responsibilities and expectations. Most important, a well-drafted contract gives guidance when there is a problem. If a party to a contract fails to do what is required, a properly-drafted contract can be invaluable in protecting the rights of the non-breaching party.