Should you consider a stock purchase or asset purchase – which is best to acquire a San Diego or Southern California business?  There are two primary methods to acquire a company, corporation, or any part thereof: a “stock purchase” or an “asset purchase”.  Each strategy has advantages and areas of concern for both the buyer and the seller. The decision of which strategy to employ is highly fact and situationally dependent.  This is why it is important to consult with the experienced San Diego mergers & acquisitions attorneys at the Watkins Firm.

Stock Purchase or Asset Purchase – How Will You Choose?

Stock purchase or asset purchase – how will you choose? The decision will be informed by the specific purpose of the acquisition as well as the assets you most wish to protect.

In a stock purchase, you acquire the corporation or company itself, lock stock and barrel, including all assets, customers, products, inventory, real estate, employees, liabilities and contingent risks.  This may be required in situations where government or corporate contracts require, or for companies that have extensive intellectual property such as patents and copyrights.

A stock purchase is a legally and financially complex transaction which almost always requires extensive preparation by the seller before putting their company on the market, and extensive due diligence on the part of the buyer to ensure every aspect of the transaction is factually presented and the products and marketability of the target (goodwill) will be passed from seller to buyer.

An asset purchase allows you to buy specific elements or assets within a company without taking on the contingent liabilities the seller might carry.  Asset purchase transactions are quite common and cover everything from a single bucket truck to an entire production line.  The primary risk to the buyer is to ensure the condition of the asset to be acquired and to ensure clear, unencumbered title to the asset. An asset purchase is also an effective tool for selling off one division that may be less profitable or outside of the core function of a business.

Advantages and Risks for the Buyer and Seller Alike

As in any business transaction there are advantages and risks for buyer and seller alike, as well as tax ramifications based upon how the deal is structured.  Extensive due diligence is required to protect all parties from present and future contingent liabilities as well as the potential for concealing the genuine nature or value of an asset or the company itself.

This is why it is important to work with the proven mergers and acquisitions team at the Watkins Firm. We bring more than 40 years of proven successful experience to your side of the equation.  We have been through hundreds and hundreds of these transactions and provide valuable and insightful counsel at every step of the process.

Is a stock purchase or asset purchase your best strategy to acquire a San Diego or Southern California business or part or all of it’s assets?  If you are researching these questions you need an informed, insightful and complimentary legal consultation from a proven business law firm who has “been there, done that.”

We invite you to review our Podcast Episode 13 – Mergers and Acquisitions as well as the strong recommendations of our clients and contact the mergers and acquisitions attorneys at the Watkins Firm or call 858-535-1511 for a free consultation.