We recently discussed some of the basic aspects of business mergers in Pennsylvania. Another common method of combining businesses is for one business to purchase, or acquire, another business. In this article, we will discuss basic aspects of business acquisitions.
There are primarily two ways a business can acquire ownership of another business, either by a stock purchase, or by an asset purchase.
In a stock purchase, a buyer purchases the majority of a business’s stock. The buyer steps into the shoes of the selling shareholders, and as the majority shareholder, now controls the business. A stock purchase may be preferred by the selling shareholders because tax consequences can be more favorable than in an asset purchase. Additionally, a stock purchase allows a business to change hands less noticeably than in an asset purchase, because no corporate assets or contracts are affected.
A downside for buyers acquiring a business through a stock purchase is liability exposure. Unless the buyer is thoroughly indemnified from liability by the seller, he risks assuming unknown liabilities of the business. A buyer should consult with an experienced business law attorney regarding any potential liability and to draft a binding indemnification agreement.
Another means of acquiring a business is via an asset purchase. In an asset purchase, a buyer purchases all of a business’s assets, including tangible items like inventory, fixtures, and equipment, and intangible items such as good will and intellectual property.
Buyers often prefer an asset purchase over a stock purchase because an asset purchase allows the buyer to avoid assuming liabilities of the business. Other benefits to the buyer include being able to select certain assets for purchase, and favorable tax treatment for the buyer.
If you are considering a merger or acquisition, consult with an experienced Pennsylvania business law attorney who can help you choose the right course action for you and your business. Located in western Pennsylvania, the experienced attorneys at Scolieri Law Group, P.C. can answer these and other business law questions. Contact us today at (412)765-0546 or firstname.lastname@example.org.