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The purchaser can buy the assets from the corporation. 2.
The purchaser can buy the corporate stock from the corporation's shareholders. Here's a rough analogy: You go to a garage sale. You see a framed collection of turn-of-the-century advertisements for vacuum cleaners, cleaning supplies, and the like. The ads are spectacular and would look great in your headquarters. But the ads are in ratty, beat-up, dirty frames. And you think you see fleas, or ants, or something tiny running around the edges of the frames. Finally, you don't have room in the trunk of your car for all the framed ads. You have two options. You can buy: 1.
Just the prints. 2.
The whole kit-and-caboodle-the prints, the ratty old frames, the dusty glass, and the accompanying fleas or ants. You, the buyer, are only interested in the prints. You want to buy just the assets. But if you're the seller, you want to get rid of it all. You've got no use for the battered frames, smudged glass, and a potential flea circus. You're trying to sell it all. You want to sell your entire stock. It's the same in buying or selling a business. The buyer is generally interested in acquiring just the assets. The seller wants to sell the stock. One potential problem is known assets and liabilities. In our analogy, the garage sale buyer saw the battered frames and decided he'd have the pictures reframed. Maybe the seller was assigning some value to them; maybe not. But they both knew the real value was the prints. In buying a building service contracting company, the purchaser might not want a pickup truck, some old vacuums, and spare parts for a long-since-sold floor machine. An asset buyer can identify those items he doesn't want to buy. A seller probably wants to dispose of everything. Another issue is hidden liabilities. In our analogy, the buyer suspected there might be some ants or fleas living underneath the frames. He certainly doesn't want to buy those. The seller doesn't want them, either. In buying a building service contacting company, the hidden liabilities could be a pending lawsuit (an ex-employee about to sue for being fired) or unpaid bills that weren't discovered during negotiations. The seller doesn't want to hassle with these after he's sold his business. So he wants to sell stock. But the buyer doesn't want these surprises, either. So he just wants to buy the assets. The issue of stock versus assets sale also has tax implications. So be sure to involve both your lawyer and your accountant in this phase of the transaction. For the purpose of this book, you need to understand the difference between the two types of sales, which type best serves your needs, and then determine how the two options will affect your negotiations.