STRUCTURING
THE PURCHASE AND SALE OF A BUSINESS
The
purchase and sale of an existing business may be accomplished
in one of three ways:
- The
sale of business assets;
- The
sale of stock, membership, or other ownership interests;
or
- Statutory
merger or consolidation.
Each
method is effectuated in a different manner, and the
benefits and detriments of each type of acquisition
is dependent upon the statues of the states governing
the businesses and transaction and the tax considerations
of the transaction.
SALE
OF BUSINESS ASSETS
The
benefit to purchasing the assets of a business rather
than the business as a whole lies in the unknown obligations
of the target business. While all the obligations of
a business should be found in the balance sheet, sometimes
the obligation is unknown to the seller or the costs
associated with an obligation are as yet undetermined.
A
prime example of an unknown obligation is a lawsuit
against the target company. If a future litigant has
not contacted the target business and made a claim for
damages, the target company may not realize the legal
claim exists. Litigation against a target company might
also be pending at the time of a sale, and the seller
may not know exactly how large a judgment against the
target business might be.
In
an asset sale, only the obligations appearing in the
balance sheet are assumed by the buyer and any obligations
not expressly assumed by the buyer remain the obligation
of the seller.
SALE
OF OWNERSHIP INTERESTS
Purchasing
all the shares of stock or membership interest in a
corporation or LLC is an easier way to acquire a business
compare to an asset sale. When all the stock or membership
interests are purchased, all the assets of the business
are transferred to the new owner.
Another
advantage to purchasing ownership interests lies in
the burden an asset sale places on the transaction under
"bulk sale" laws. Bulk sale laws require notice
of an asset purchase be furnished to the creditors of
the seller and allow creditors not receiving notification
to settle debts against the purchased assets. However,
when the ownership interests are purchased, and thus
the assets purchased indirectly, bulk sale laws do not
apply.
STATUTORY
MERGERS OR CONSOLIDATIONS
A
statutory merger occurs when a purchasing corporation
or LLC purchases a target corporation or LLC, liquidates
the assets of the target, and continues operating as
the same purchasing corporation. Consolidation occurs
when a purchasing corporation or LLC purchases a target
corporation and emerges as a new corporation or LLC
different from either the purchasing or target corporations
or LLCs.
TAX
CONSIDERATONS
Apart
from the non-tax considerations above, state and local
governments impose taxes upon the transfer and sale
of assets, including transactions in which businesses
are purchased and sold. Sales taxes, taxes on real estate
transfers, and taxes on motor vehicle registrations
should be considered when choosing a method to purchase
or sell a business and may be avoided with some methods
of ownership transfer. |
