San Diego Business Acquisition Lawyers
One method to buy a business, or take an ownership position within a corporation is known as a “stock purchase”. In this form of business transaction the “buyer” obtains the selling shareholder’s stocks, taking the place of the seller in the ownership of the company. A stock purchase agreement is developed to identify all of the terms between the parties to the transaction including basic information such as purchase price, the number of shares to be procured and the method of payment or value to be exchanged in return for the stock. The stock purchase agreement must accomplish a lot more than simply transferring ownership from one party to another. It must establish a timeframe for due diligence, set asides for indemnification and valuation adjustments, as well as the representations and warranties upon which the transaction is based. Stock purchase agreements are quite complex, and it is important to work with experienced business merger and acquisition attorneys who will foster and protect the relational aspects of the transaction while protecting your legal and financial interests.
When Does a Stock Purchase Make Sense?
There are two principal ways to acquire an existing corporation or business: a “stock purchase” or an “asset purchase”. A stock purchase is attractive for differing reasons from the perspective of the “buyer” and the “seller”. For the seller, a stock purchase may allow the proceeds to be taxed at a much lower rate while avoiding additional corporate taxes (such as in a C Corp). Sellers may be less responsible for future liabilities and risks associated with employee disputes, business and product liabilities, outstanding corporate financial obligations and other business risks. An effective stock purchase agreement may apply some of those risks back to the seller, and this is an area of critical focus during the negotiation of the agreement.
Buyers are often concerned by these risks and contingent liabilities, as well as the stepped up “basis” for future tax valuation. However, there may be specific types of assets or intellectual property such as patents or copyrighted materials, or if it has government or corporate contracts that make an asset purchase unfeasible. In these cases the corporation (as opposed to the shareholder or owner) retains ownership and a stock purchase preserves the overall viability of the company. A stock purchase may also preserve valuable customer and vendor relationships that can be disturbed by a highly visible corporate transaction.
Stock Purchase Agreements Require Extensive Business and Legal Skill
Stock purchase agreements and transactions are quite complex, and require a unique blend of legal and business skill, as well as the ability to foster and protect working relationships and a “positive” atmosphere for the completion of a successful deal. If you are interested in discussing the acquisition of a business or a stock purchase contact the proven mergers and acquisition lawyers at the Watkins Firm at 858-535-1511 or contact us to schedule a date for a personal meeting in our offices in San Diego. Our clients value that we go much further than a simple 30 minute conversation or consultation. We will develop a comprehensive strategy and budget in advance so that you can enter the transaction with confidence and with a clear understanding of the road ahead and the projected costs.