We are often asked about the differences between a stock purchase and an asset purchase, and which one is the better vehicle?  They are two completely different business acquisition strategies, and they are employed to accomplish differing objectives.  The primary difference is the extent of the liability that passes from the seller to the buyer, as well as the ability to continue existing government contracts and use of trade names and intellectual property.

In a stock purchase you are buying the entire business, including all of its outstanding debts and liabilities.  This is especially important when the company has specific types of contracts that you wish to preserve, such as contracts with governmental agencies.  There may be patents, trademarks, copyrighted materials or other intellectual property you wish to control, and this usually requires a stock purchase.  However, the buyer assumes all of the risk associated with the existing business including any present or future legal disputes, and liabilities.  There are protections we advise our clients to put into place, and these contracts must be carefully constructed and executed.

Asset purchases are much more specific, and are used to convey specific property, materials, real estate or even a corporate division from one business entity to another.  This is an effective option for purchasing a manufacturing facility, a fleet of vehicles or even a portion of business that is no longer a good fit for the parent company but enhances your own business model.  Asset purchases limit your liability, but they also may limit what you are able to purchase.

If you are considering an acquisition, or have questions regarding an asset purchase or stock purchase we invite you to contact the Watkins Firm or call us for a free and comprehensive consultation at 858-535-1511.  We will apply our decades of experience and provide sound counsel and legal guidance to help you to complete a successful acquisition and move your business objectives forward.