What is a stock sale? How is a stock sale different from an asset sale? Is a stock sale or asset sale better? As a business attorney, these are common questions I hear from clients when they are considering selling their business. A stock sale and an asset sale have advantages and disadvantages, which may me more pronounced to either the buyer or seller. The article and video below have been prepared by a Denver business attorney at The McGuire Law Firm to provide information regarding a stock sale. Please remember that the information provided on this site is for informational purposes and it is recommended that you always consult with your business attorney and/or tax attorney before entering into any business or individual transaction.
Unlike an asset sale, a stock sale is the sale of the corporate stock. Thus, the corporate assets are not necessarily purchased, but the ownership of the corporation has changed. Thus, with a stock sale the corporation remains. This may be a benefit to the seller of the stock because they may only recognize capital gain on the sale of the stock, as opposed to the corporation recognizing gain under an asset sale if the corporation were a C corporation. However, because the corporation remains, the liability of the corporation for previous acts “follows” the corporation. Thus for liability purposes and exposure to prior corporate actions, many buyers would prefer an asset sale. Furthermore, when buying the stock of a corporation, the buyer does not receive the same step up in basis for the corporate assets that they would have, had they purchased the assets through an asset sale. Thus, the depreciation amounts carry over through a stock sale from the seller to the buyer, which is typically a disadvantage to the buyer. The step up in basis to the purchase price of the assets would generally lead to a larger deduction and thus tax benefit.
There are other matters and issues to consider between a stock sale and an asset sale. If you have questions related to the sale of your business, the purchase of a business or another business transaction, please contact The McGuire Law Firm to speak with a Denver business attorney.
Schedule a free consultation with a business attorney in Denver or Golden Colorado by contacting The McGuire Law Firm.