When is a Stock Purchase a Better Option Than an Asset Purchase?

When is a Stock Purchase a Better Option

When is a stock purchase a better option than an asset purchase?  The primary advantage is a stock purchase agreement allows you to take controlling interest or buy an entire corporation.  This is obviously not an option for an LLC as there is no “stock” in this form of business entity.  The primary drawback to a stock purchase when compared to an asset purchase is the extent of your contingent liability.  The experienced mergers and acquisitions attorneys at the Watkins Firm have served the San Diego business community for decades.  We understand the complex nature of purchasing a corporation and how to protect our clients during a stock purchase transaction.

There are times when you want absolute control of a corporation, without disrupting the existing employee workforce or the delicate relationships with existing customers.  You may be concerned about military contracts, or the preservation of registered trademarks, patents, copyrights or other intellectual property.  A stock purchase agreement allows you to “step into the shoes” of an existing controlling interest in a corporation.  In some cases the company isn’t even aware that an ownership change has occurred.  It is important to keep existing management and key personnel in place to ensure continuation of profitable business and relationships.

It is also often necessary to ensure that the seller maintains “skin in the game” after the sale is completed to ensure transfer of goodwill to the buyer.  This is often accomplished through a “consultant” arrangement or other temporary service contract.  It allows for a period of time to pass after the transaction when actual performance can be compared against pre-sale positions represented by the buyer.  It also allows a period of time for unforeseeable contingent liabilities to surface and for any appropriate amount to be offset from the seller’s proceeds in the stock purchase transaction.

When is a stock purchase a better option than an asset purchase?  The answer lies in the mastery of limiting contingent liability and when it is important to seize control of a corporation and its employees, customers, assets and intellectual property.  If you are considering a stock purchase we invite you to contact the experienced San Diego business attorneys at the Watkins Firm or call today for a free consultation at 858-535-1511.  Learn about our decades of service to the San Diego business community and our ability to effectively advise and protect you throughout this process.

Leave a Reply

Your email address will not be published. Required fields are marked *