Asset Purchase vs. Entity Purchase - FAQ
Asset Purchase vs. Entity Purchase - FAQ
August 24th, 2022
If you own or share ownership of a company, it pays to know the difference between asset and entity purchases. It can be very difficult to predict when exactly anyone will need to buy or sell resources, or whether a business partner might decide to leave a business. The Tampa business attorneys at Heller Law break it down…
What is an asset purchase?
An asset purchase is when one company only purchases the assets of another company, but not any share or membership interest in the company itself. Any assets that are not part of an agreed asset purchase will remain the assets of the selling company.
What is considered an asset?
Any valuable resource that a company uses for production or growth can be defined as an asset. Some examples of assets include, but are not limited to a company’s inventory, equipment, contracts, facilities, vehicles and accounts payable. Assets can also include the intellectual property of a company, such as trade secrets, trademarks, patents, and copyrights.
Do you become liable for the company you purchase assets from?
One of the benefits of an asset purchase is that a buyer is only purchasing certain agreed assets from a selling company. Generally, this means a buyer will not assume the selling company’s debts, obligations, or other liabilities, however, there are exceptions. For example, a buyer may simply agree to assume certain liabilities of a selling company as a condition to the asset purchase. In addition, certain assets may be attached to liabilities that a buyer will inherently become responsible for upon purchase. This is why the importance of having a full and complete understanding of the terms and conditions associated with an asset purchase should never be understated.
Are there differences in purchasing assets from a public company vs a private company?
Generally speaking, it should not matter whether the seller is a public or private company insofar as the process is concerned, but while the process for purchasing assets will more or
less be the same across the board, this does not mean all asset purchases are created equal. The terms and conditions of every asset purchase need to be carefully considered.
What happens to the share or interest holders in an asset purchase?
In the case of an asset purchase, there is no acquisition by a buyer of shares or ownership interest in the selling company. In other words, the ownership structure of the selling company remains the same.
Are there any drawbacks to purchasing assets?
There are a few reasons why asset purchases aren’t very common:
● Transferring the ownership of assets can be a very time-consuming process that many people would rather avoid.
● Changing ownership could interfere with existing contractual agreements and legal documents.
● Tax implications of an asset purchase can be both costly and complicated, and often require the assistance of a tax expert.
What is an entity purchase?
An entity purchase can be referred to by a number of different names depending on the structure of a company. For example, an entity purchase may be referred to, among many other things, as a “corporate purchase agreement,” “stock redemption agreement,” “stock purchase agreement,” “entity purchase agreement,” “entity redemption agreement” or “partnership liquidation plan.”
Regardless of the terminology, entity purchases in general all share the same concept. The purchase of a company’s entity means the purchase of the business itself, and occurs when a buyer purchases and acquires the shares or membership interest of a selling company. In other words, the purchaser becomes the owner of the company, not just the owner of the company’s assets. This also means there are certain risks. When a buyer purchases an entity, they are also likely acquiring the entity’s debts and liabilities.
Why would a company be interested in an entity sale?
There are a number of reasons, whether voluntary or involuntary, why the owners, shareholders or interest holders of a company might be interested in an entity sale, a few examples being:
● Criminal activity
Consult the Experts at Heller Law!
The business attorneys at Heller Law are available to discuss your business’ legal needs. We prepare legal documents and agreements to avoid future altercations, offer business consulting, and assist with existing complications. Give the lawyers at Heller Law a call at (727) 828-6071 to discuss your business’ needs today!
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