For most acquisitions, the initial consideration is how to best structure the business transaction. One option is the purchase of all of the shares of the target corporation.
A share purchase transaction has several advantages from a seller’s perspective. Those advantages include (subject to the terms and conditions of the underlying share purchase agreement):
- Relieving the seller from the majority of the obligations associated with the business operations of the target corporation.
- Generally, more favorable tax treatment[1] for the seller.
- Generally, easier for a purchaser to maintain contracts, such as real estate lease agreements for example, as a purchaser is essentially stepping in to the shoes of the seller.
At Sodagar & Company, we have worked on numerous business sales that were structured as share transactions. In considering this strategy, it is important to examine the underlying purpose of the transaction and what value is being received and what liabilities are being assumed.
In contrast, an asset purchase transaction allows a seller and purchaser to choose which assets of the target business are being sold and what assets are to remain intact.
In such transactions, a purchaser typically purchases the majority of the seller’s assets such as equipment, accounts receivable, client lists, and other items. From the purchaser’s perspective, an asset purchase is generally preferred it allows the purchaser to better pick and choose those assets which it wishes to purchase (e.g., a particular piece of equipment) while excluding those liabilities which it does not wish to assume (e.g., an unfavorable contract or pending litigation).
While asset and share purchase transactions are the most common form of business transactions, there are various other forms of business transactions such as joint venture, franchise, partnerships etc.
Every business transaction involves its own unique set of circumstances, at Sodagar & Company we work closely with you to determine the most appropriate form of structure for your intended business transaction. Please contact us to determine how we may be able to assist you on your next business transaction.
[1] Tax implications for every transaction is different, sellers and purchasers are encouraged to seek legal and accounting advice prior to deciding on the structure of any business transaction.