Asset Sale vs Stock Sale

by a searcher from Columbia University - Columbia Business School

3 years ago

I understand asset sale is typically better for buyers from a liability standpoint, but can an expert on this matter provide some rules or guidance? This company has $1M of assets, of which $800K is in cash and $100K in fixed assets. No AR or AP. 

Few questions:

1. Do I keep the cash accounts and fixed assets in an asset sale? What about the liabilities?
2. Can I create an LLC to buy the business instead of under my personal name?
3. Are there any tax implications or advantages for an asset sale as a buyer or seller?

2 likes
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3 comments

searcher from Campbell University

When I bought my business I performed an asset purchase and essentially bought the company based on a valuation/multiple of its earnings. The purchase price included all fixed assets plus inventory within the multiple. Any value paid over and beyond the fixed assets fair market value and inventory was listed as "goodwill" on the balance sheet for the most part. My seller was 65, looking to retire, and not extremely savvy when it came to finance but was a very good business women. So in our case, we kept the capital structure and terms as simple and straightforward as possible.

Sounds like the business may not necessarily have a lot of PP&E compared to the amount of cash you listed it having and possibly generating. Just a guess. A business with low CAPEX cost from year to year is a positive in my book.

3 years ago | like reply | 0 likes

searcher from University of Wisconsin - Madison

1. You keep whatever you agree to keep, but I think it would be unusual to purchase their cash and debts
2. Yes, I would always use a LLC or some form of SPV
3. Stock sale is better for seller because proceeds are taxed as capital gains (lower tax rate). Asset sale is better for buyer due to depreciation/amortization advantages. Pretty good article on it from buyer POV here: https://corporatefinanceinstitute.com/resources/knowledge/deals/asset-purchase-vs-stock-purchase/

3 years ago | like reply | 1 like

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