Yesterday we discussed the option of an asset purchase. Today we will review the other option to acquire an existing business or competitor: a stock purchase. San Diego stock purchase transactions require skill and expertise and the Watkins Firm has decades of experience in these matters. While an asset purchase provides the opportunity to acquire specific assets and reduce or eliminate risk, a stock purchase is fraught with legal issues and risks for the buyer and seller alike. The primary risk in a stock purchase is contingent liability. The transaction must be structured to protect our client’s interests and to ensure that unforeseen liabilities don’t surprise them once the transaction is completed.
Another reason stock purchase transactions require skill and expertise is the delicate negotiations that resolve issues surrounding that contingent liability. The seller in these transactions wants to receive the most amount of money possible, and walk away from the transaction without any future liability. This simply isn’t feasible, and definitely isn’t in the buyer’s interests (unless this right can be offset by something substantial such as an insurance policy or a greatly reduced purchase price). Usually, the seller must remain as an active consultant in the business following the completion of a stock purchase to ensure the transfer of goodwill, and to prevent liabilities from arising. Sophisticated buyers will require the seller to set aside some of the proceeds of the sale in reserve to offset any unforeseen liabilities for a period of time.
A stock purchase allows one to acquire a business entity or a substantial interest therein. This preserves all existing employees, customers, contracts, supply chains and vendor relationships – many of whom may even be unaware that a transaction has taken place. Our clients understand stock purchase transactions require skill and expertise and look to the experienced mergers and acquisitions attorneys at the Watkins Firm to protect their interests, limit or eliminate liability and contribute in a positive manner throughout the course of the “deal-making” process. If you are considering buying or selling a business in San Diego we invite you to contact us for a free consultation at 858-535-1511.