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Asset Sale vs Stock Sale

Business Asset Sale vs Stock Sale

Normally (with a few exceptions), when a business broker lists a small business for sale, it is what’s known as an ‘asset sale.’ An ‘asset sale’ in this sense means that the buyer is not purchasing the company’s business entity, such as their LLC or C-Corp name, as that would technically be purchasing the stock of that company. What a buyer is purchasing is all of the assets owned by the business that is selling: tangible assets, such as equipment and intangible assets such as their DBA (Doing Business As) or fictious name, customer list, goodwill, website, reputation etc.

Not purchasing the business entity is actually a benefit to the buyer. The buyer creates their own business entity, which is all their own. They won’t have to deal with possible liability issues that can arise by taking on the previous owner’s business entity. Unlike a stock sale, the buyer obtains the assets usually free and clear of any liabilities of the seller, and this is guaranteed in the purchase contract. This way, the buyer has a fresh new business entity that will take ownership of all of the assets purchased from the previous owner.

Some businesses, the healthcare or construction industries for example, have government contracts that are tied to their business entity name, and wouldn’t transfer with the business asset sale. Therefore, it is sometimes necessary to do a stock sale when selling a small business. Or there are occasions where maybe one partner wants to buy out another partner. That would usually constitute a stock sale as well. A business broker can help facilitate these types of transactions too, but because we don’t carry a securities license, we need attorneys to be involved in the binding of the agreement. In the case of a stock sale, buyers and sellers will use their own attorneys to draw up and negotiate purchase contracts, whereas in an asset sale, your business broker will be able to use standardized contracts to bind the parties to a business sale transaction. Many sales of larger sized companies will be a stock sale, as opposed to an asset sale, so it really just depends on the size of the business and the circumstances of the deal.