When it comes to selling a business, there are two primary methods: an asset sale and a share sale. Both have their own advantages and disadvantages, and it is important to understand the key legal differences between the two. For the purposes of this article, we are assuming that the entities involved are corporations, as opposed to other business structures such as a sole proprietorship or partnership.
In an asset sale, the buyer purchases specific assets and may agree to assume specific liabilities of the business rather than buying the entire company. The assets can include items such as equipment, inventory, goodwill intellectual property, and contracts. The shareholders of the selling corporation retain ownership of the legal entity. The buyer may choose to use an existing corporation or create a new entity to acquire the purchased assets.
Generally speaking, a buyer will prefer to acquire a business by way of an asset sale. A primary advantage of an asset sale is that the buyer can pick and choose which assets and liabilities they want to acquire, and they are not responsible for any unknown or undisclosed liabilities of the seller. This can help mitigate the risk for the buyer. Another advantage of an asset sale is the tax benefits available to the buyer. The buyer may be able to depreciate the assets over time, reducing their tax liability.
From an employment law perspective, the buyer is not automatically liable for the seller's employees in an asset...
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