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Purchase a New Business

When buying or selling a business, there are many concerns parties must recognize and address.  One such concern is whether the buyer or seller should agree to a stock purchase or an asset purchase.  Another concern is how the sale and purchase agreement should be drafted. 

With respect to all these concerns, it is important to have an experienced attorney who is knowledgeable about corporate transactions to guide you through the steps of buying or selling a business.  A qualified attorney can help prevent future problems, offering both buyers and sellers peace of mind and helping you avoid costly mistakes. 

Stock Purchase Agreements vs. Asset Purchase Agreements

A stock purchase agreement involves the purchase of the ownership interest, such as the corporation's stock.  In this type of agreement, the outstanding shares of stock pass from the seller to the buyer.  Essentially, the purchaser moves into the place of the seller, and the seller's interest in the business ends, meaning the seller has no continuing interest in the business' assets and liabilities. 

However, in an asset purchase agreement, the seller might continue to have ownership of the business' shares of stock, while the buyer purchases some assets of the corporation, such as facilities and equipment.  The purchaser can also buy intangible assets of the company, such as goodwill.  As a result of the seller's continued ownership of the stock, the buyer must form a new business entity or use another existing business entity.  Asset purchase agreements can be very complex, because the assets, existing contracts, and liabilities must be transferred to the new business entity.  If some contracts and liabilities will not be assumed by the buyer, then the agreement must clearly set forth the continued liability of the seller.

Advantages and Disadvantages

In general, sellers will prefer stock purchase agreements instead of asset purchase agreements, because of certain tax advantages.  Also, the seller can step away from the business once the transaction is complete.  Buyers prefer asset purchases because of better tax advantages.  In addition, they can pick and choose those assets and liabilities they desire, and those which they don't wish to own or assume.

Buyers also prefer asset purchase agreements because, unlike stock purchases, the buyer is protected from the company's unknown or unfavorable liabilities.

Sale and Purchase Agreements

Sale and purchase agreements identify the particular assets or stock of the business that is being transferred.  It is crucial that the agreement accurately identifies the interests of both the seller and buyer.  The agreement should identify everything that is being transferred to the buyer, such as the business name, customer lists or intellectual property. 

Other aspects of the transaction that the agreement should address are the following:  purchase price and allocation of the purchase price to individual assets, terms of the agreement, any seller's or buyer's warranties and representations, and having the seller possibly continue as a consultant for an agreed period of time. 

Before initiating the sale or purchase of a business, it is important to consult an attorney experienced with corporate transactions, so that your interests are protected in the transaction.  Additionally, an attorney can help you determine, depending on your circumstances and needs, whether you should select a stock purchase or asset purchase.  For more information and guidance on purchasing or selling a business, contact the Law Office of Philip W. Boyko today for your initial consultation. 

Law Offices of Philip Boyko

Attorney at Law
4615 Southwest Freeway
Suite 600
Houston, Texas 77027
Telephone: 713-626-2221
Fax: 713-626-0182

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