Is It Better to Buy Stock or Assets of a Company?
When investors are interested in contributing funds to a company--in exchange for profit--they are limited to basic choices, usually the various types of stock and bonds offered by the company. However, when another business or investor wants to acquire the company completely, they have a choice between buying out enough stock to own the company, and buying all major company assets. Which choice works best depends on the parties involved and what their financial goals are.
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Buying Stock
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When a company is sold through stock acquisition, the current owners of the business offer to sell their stock along with any other outstanding stock they may have. The buyer then purchases all their stock, or ownership, in the company and smoothly takes over company operations. The actual business practices of the company do not change along with this purchase, only the owner of the company. Other changes may be made afterward, but the exchange of stock is the only process required to complete the transaction.
Asset Purchase
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In an asset purchase, the buyer decides to buy up the assets of the company. This arrangement is typically more complex than buying stock. The buyer only agrees to purchase specific assets and related liability that are listed in the contract made with the seller. The seller often keeps ownership of the stock related to the business. The buyer usually creates a new business using the assets, liabilities and contracts of the old company, but it may choose to take over the old company and retain the old name as well. Assets are sold at fair market value.
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Seller Perspective
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From the perspective of the business seller, buying stock is a better way to let go of the business. Not only is selling stock a more simple process that selling assets, but it allows the seller to walk away from the company without any liabilities or connection, only the profit resulting from the sale. In an asset purchase, the seller may still have to deal with retained liabilities and lesser assets while also holding onto company stock.
Buyer Perspective
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From the perspective of the buyer, an asset purchase is often the most ideal choice when buying a company. This makes it easier for a buyer to specify exactly what is being purchased, making it easier for the buyer to develop independent plans about using the assets of the company. This is even more useful if the buyer wants to avoid particularly complex or difficult liabilities that the old company has.
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