What Considerations are involved in a Corporate Stock Acquisition?


Video Summary

What considerations are involved in a corporate stock acquisition?  Usually you are talking about a stock acquisition whenever you're purchasing a business.  There's two ways to buy a business as you buy the assets, the good will, the accounts receivable, the use of the name and maybe a restrictive covenants.  And if so, that's an asset purchase and you do not buy the stock and that's the way most businesses are sold.  The reason for that is, that the buyer does not want to get hit with any unknown liabilities of the business.  So to answer the question, the consideration as far as taking the stock rather than just buying the assets of the business is that you are responsible for all liabilities that you may or may not know of also as far as any tax liabilities.  Sometimes if they are subchapter S's why you can allocate the stock.


Also another tax consideration is you do not get an increase or a stepped up in basis in the assets if you buy the stock, you line up with the assets as far as being depreciated.  Now that's looking at it from the buyer's perspective.  From a seller's perspective it works very well to simply sell the stock and that way it's very easy.  You simply transfer the stock, roll the stock certificate over and hand it over to the buyer and the buyer turns around and gives you a check or gives you the proceeds.  Usually with a contract though, there's a lot of due diligence to try and determine if there are any liabilities and any taxes that are owed.


Usually a stock acquisition happens whenever you have a one shareholder is buying out another shareholder and it's not a complete sale but they are already involved in the business and you are buying out the retiring partner or a partner that wants to leave or under a buyout arrangement that you have entered into previously if we have a unhappy shareholder, you are not getting along on a small business where everyone works in the business and someone's leaving, then they can simply buy his stock out since they already know of all the liabilities and the tax considerations.


So that's the considerations you have as far as how to structure a purchase of a business if you are buying from a stranger and buying all the assets.  I suggest you do an asset purchase rather than purchasing the stock whereas if you are involved in a corporation or an LLC and you're buying out your partner, well then the purchase of the stock is the way to handle that buyout.


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