When initiating a business purchase, you may be faced with these types of deals: the acquisition of its assets, or the acquisition of its stock. Note that a merger is a strategic type of stock acquisition. Basically, sellers have a preference to sell the stock of a business. In contrast, buyers have a preference to acquire the assets.
Buying the assets of a company rather than its stock provides the buyer some tax breather and the choice to purchase only the attractive assets and ignore the liabilities. The purchaser of a company's assets does not inherit the liabilities of the company, while the stock buyer does, which is a critical aspect in deciding which type of engagement is right for you.
Caution though, that there are some cases that can trigger you paving more preference to buying stocks over assets. Note that some ownership documentation are not transferable, so if taking advantage of these benefits is a priority, buying the stocks of the company becomes a necessity.
When dealing with due diligence, it is recommended to find out if certain contracts and ownership titles are transferable, and if such documentation will be maintained if company stocks are to be purchased. Legal documentation and ownership papers of many enterprises have particular articles stating restrictions on the sale and purchase of the company’s assets and stocks.
While most companies that are selling are in favor of having stock available for purchase, it is so because they get access to tax exemptions and better capital gains over the sale. Buying stocks can be carried out through direct stock purchases from all the selling stakeholders or through a merger.
A mergers and acquisitions engagement is directly influenced by regulatory policies and governing laws—the outcome of which is an enterprise being combined into another enterprise. After integration, the business of the combined enterprises continues in the form of one entity.
Mergers and acquisitions is usually accorded with tax exemptions, such is when the selling stakeholders accept stock in another enterprise, and are not required to pay right away the tax on the sale of shares. Also, unique to mergers and acquisitions is the benefit of not having each stakeholder necessarily approve the engagement. Should you need guidance on how to unravel the complexities of mergers and acquisitions engagements, please contact us.
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