Intelligent deal structuring is the key to maximizing bottom-line results when negotiating the sale or purchase of a business. In addition to price, other fundamental components such as what is being sold (i.e., stock or assets), when and how payment will be made (i.e., down payment, earn-out, bank financing and/or seller financing, etc.), taxation, allocation of liabilities, ongoing consulting and employment arrangements and other business factors can have a very significant impact. The balancing of these components between the buyer and seller can be very complicated and the Corporate Practice Group at Kelleher & Buckley, LLC can help maximize bottom-line results. Common methods for buying and selling a business include the following:
- Stock Sales: In a stock sale, the buyer purchases the seller’s corporate stock. Unless otherwise agreed, the stock sale default is that the buyer assumes all the corporation’s liabilities. Sellers typically prefer stock sales because of lower tax rates and the buyer’s assumption of corporate liabilities.
- Asset Sales: In an asset sale, the buyer typically only purchases the corporation’s assets, and the buyer only assumes specified liabilities. Any liabilities not specifically assumed by the buyer remain the seller’s obligation. Buyers typically prefer asset sales because of tax advantages and the seller generally retaining liabilities.
- Tax-Free Reorganizations: Generally, a tax-free reorganization is when the buyer pays the purchase price by using buyer’s own stock as the consideration, which results in a tax free transaction, except to the extent of any non-stock consideration, such as cash (“boot”), received by the seller’s shareholders.
- Mergers: In a merger, the seller’s company (i.e., the target company) typically merges with and into the buyer’s company, which survives the merger. This is typically accomplished by the buyer converting the stock owned by seller’s shareholders into the consideration given for the merger.
If you are interested in learning more, or desire additional information, please call Andrew J. Kelleher, David P. Buckley or Helmut E. Gerlach at 847-382-9130.