Asset Purchase vs Stock Purchase

Difference Between Asset Purchase and Stock Purchase

In case of the asset purchase, the buyer purchases the specific assets and the specific liabilities of the company which it wants and there is no transfer of the business ownership, whereas, in case of the stock purchases, it is compulsory for the buyer to take all the assets and the liabilities of the seller company and there is full transfer of the business ownership.

Mergers and acquisition which also refers to inorganic growth is the buying and selling of companies which have its own advantages. In any transaction of merger and acquisition, the owner and investors have a choice whether to do the transaction in an asset purchase or to purchase the common stocks of the company. The buyer of the asset which is the acquirer and the seller of the asset which is the target can have their own reasons and explanations to opt for either one type of transaction or another.

Asset purchase transaction where the buyer purchases individual assets of the company like goodwill, equipment inventory, etc. The assets are being valued by the valuation experts which are appointed by the company. However, in this method, the parties can discuss which assets to acquire and which liabilities to assume which makes the method more structured in nature and is more complex as more negotiations over the counter take place and sometimes the deal is not scrapped altogether because the parties don’t reach to mutual consent.
The stock purchase is mainly related to the acquisition of stocks of the company wherein the buyer becomes the owner of the company. In this method of purchase, the company purchases the common stock of the target company and hence enjoy voting rights and ownership of the business.

Asset Purchase vs Stock Purchase Infographics

Key Differences

Under the asset purchase transaction, there is no transfer of ownership of the business to the buyer and the seller remains in full ownership of the business whereas in a stock purchase method the ownership of the business is transferred to the buyer in the case
The asset purchase transaction is generally quite simple and easy in nature when compared to a Stock purchase transaction
In an asset purchase transaction, the buyer has an option to choose the liabilities which he is willing to bear in its balance sheet. But in the case of a stock purchase transaction, the buyer or the acquirer needs to observe each and every liability of the business in its balance sheet
Under the stock purchase transaction, the buyer may avoid paying transfer tax but in asset purchase transaction the buyer is obligated to pay taxes
Under asset purchase goodwill acquired by the business can be amortized over a period of five years hence a business can reap tax benefits from it but it cannot be done under the stock purchase method
The buyer can select under the asset method which employee they need to retain without impacting their unemployment rates
The key advantage of asset purchase overstock purchase is that the buyer can obtain a tax deduction for depreciation and amortization over the assets he has purchased

Comparative Table

Asset Purchase Method		Stock Purchase Method
No transfer of ownership of the business		Full transfer of ownership of the business
Business can claim tax benefits under this method		Business cannot claim tax benefits can this method
Less complexity in the method can companies do not have to comply with the securities law business		A more Complex method as regulatory compliance is mandatory when buying a company
Employee agreements with key employees may need to be re-negotiated		Employee agreement need not be re-negotiated
The buyer has the right to choose the risks and the liabilities that he is ready to bear		Under this, the buyer needs to absorb all the risk and the liabilities of the business with it
The ownership under this method is not lost and does not exchange hands		Under this method, the ownership is lost and exchanges hands
Less prevalent in the market		More prevalent in the market

Advantages of Stock Purchase

Buying under Stock Purchase method saves the cost of costly revaluations of assets and other things with the business
Buyer may also be able to avoid any liability for transfer taxes
More often used than asset acquisition and is less complex in nature when compared to an asset purchase

Advantages of Asset Purchase

Buyer can receive a tax benefit as he can amortize the goodwill over the years
Other than the stocks when an asset is purchased, the buyer tends to keep clear with the problems presented by minority shareholders refusing to sell their shares
In an asset purchase, the buyer is able to specify the liabilities it is willing to assume while leaving behind the other liabilities. On the other hand, in a stock purchase the buyer purchases stock in a company that may have unfamiliar or uncertain liabilities.

Conclusion

In Asset Purchase vs Stock Purchase, whether to go for an asset purchase transaction or a stock acquisition method depends on the company’s goals and objective and it also depends on the target company that one is acquiring. If the company has more liabilities than any good valuable assets then it is better to go for a stock acquisition rather than going for an asset purchase. But if the company has more liabilities but the assets that the company has on its balance sheet are valuable for the buyer then it is more advisable to go for an asset purchase which will reap a benefit in the long-run of the company.

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Businesses can also seek professional advisors like investment bankers or valuations experts who have many options for companies who are looking for inorganic growth in their industry or also looking to enter into a new industry altogether. Inorganic growth nowadays is the one which companies are looking for to expand their operations and reap benefits.