Can you use an asset purchase to buy an existing business?  How are most acquisitions accomplished in San Diego and across California?

The asset purchase is the most effective tool for reducing risk and contingent liabilities associated with an acquisition or merger with an existing business.  The other option is a “stock purchase agreement.”  If you wish to acquire an S-corporation or a C-corporation you can use either option.  If the business you wish to acquire is a Limited Liability Company (LLC), partnership or sole proprietorship the stock purchase will not be an option.  These entities simply do not have stock.  Usually, if you wish to buy controlling interest in an LLC one would consider an LLC member interest transaction.

There Are Risks to be Mitigated in an Asset Purchase Transaction

While it is possible to purchase the ownership interest, partnership interest or membership interests in these entities, this option may expose you to liabilities and risks you will not have to assume by simply purchasing the assets you wish to obtain.

You should consider an asset purchase to buy an existing Business or a portion of it.  The “assets” to be purchased can include (but are not limited to) equipment and vehicles, inventory, real estate or facilities, intellectual property, customers, accounts receivable, some contracts and even goodwill.  If you are purchasing a “going concern” or an active business and the assets you intend to purchase require employees to support them, you may be exposed to additional regulations, especially if the transaction involves a business with UK or European interests.

Pro-Tip: “the reason you want to do an asset purchase is because you’re buying the actual assets that are being described, and they are being sold to you in a manner where you don’t have to worry about all the other problems or secrets this corporation and its shareholders may have.

An asset purchase, will often entail an escrow. We create an escrow for our client and send out a notice that basically says ‘I bought this company’s assets.’

And if you’re a creditor, you have 60 days to come and make a claim. Otherwise, after that you will own not only the equipment and assets, you’ll own, the Goodwill, the name, the, IP, and everything contained in the asset purchase agreement free and clear.”

When to Use an Asset Purchase to Buy an Existing Business in San Diego or Anywhere in California

The primary advantage of an asset purchase is the ability to control debt and liabilities.  You may choose to accept or assume existing loans and obligations on the assets to be acquired, or you may wish to ensure that all encumbrances are cleared by the purchase prior to the transfer of title or ownership.  The due diligence associated with these transactions ensures that the buyer knows the condition of the assets they are acquiring and all pertinent historical records and information that may be associated with those assets (such as maintenance records, depreciation schedules, etc.).

There are substantial risks in asset purchase transactions involving companies with minority shareholders, members or partners.  Minority shareholders are concerned about the dilution of ownership, valuation concerns, and consent issues.  It is prudent to work with your Watkins Firm attorney to protect your interests and ensure a clean, smooth asset purchase transaction.

The attorneys at the Watkins Firm have 40+ years of experience serving the business, science and tech, real estate and medical / healthcare communities here in San Diego and across California, and supporting our clients in asset purchase transactions.  You can use an asset purchase to buy an existing business.  We have literally helped our clients with thousands and thousands of asset purchase transactions.  We will protect your interests and work to ensure a smooth transaction.

The asset purchase can be an excellent strategy to expand your own company and increase profits.  If you are interested in learning more or require assistance with an asset purchase we invite you to review our podcast Episode 13 – Mergers and Acquisitions as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.