Asset sale or stock sale: the first question in every business purchase

In an asset sale the buyer forms a new entity and purchases the assets — equipment, inventory, customer lists, goodwill, the name — leaving the seller's entity behind with its history. In a stock or membership interest sale the buyer purchases the entity itself, and everything inside it comes along: the contracts, the licences, and the liabilities, known and unknown. Buyers generally prefer asset sales. The liability wall is the reason, and the tax treatment is usually better because the purchase price is allocated across assets that can be depreciated or amortised. Sellers generally prefer stock sales, for the mirror-image reasons. Asset sales have real friction. Contracts do not automatically transfer; leases, supplier agreements and customer contracts frequently require consent, and the landlord of a restaurant or a shop is effectively a party to the deal. Licences and permits often cannot be assigned at all and must be applied for fresh, which takes time the closing schedule has to accommodate. Employees are terminated by the seller and hired by the buyer. There is also a Florida-specific point on sales tax. A buyer of a business can be held responsible for the seller's unpaid sales tax as a successor, and the way to avoid inheriting that is to obtain a clearance from the Department of Revenue before closing or to hold back funds until it is produced. Whichever structure is chosen, the allocation of purchase price across asset categories belongs in the contract, agreed by both sides, because both will report it. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com