The acquisition of a business involves a number of legal and tax issues. Consequently, successful acquisitions often involve the assistance of an attorney and a certified public accountant.
Quite often, for several reasons, the buyer chooses to purchase selected assets of the company, rather than purchase the owner's ownership interest.
First of all, the purchase of selected assets leaves the liabilities, both known and unknown, of the selling company with the selling company. Quite often the selling company dissolves after the sale of the selected assets. Whereas, the purchase of the owner's ownership interest in the company means the buyer is taking over a company which has liabilities, both known and unknown.
Secondly, the purchase of selected assets allows the purchaser to depreciate the assets purchased. Whereas, the purchase of the owner's ownership interest in the company means the buyer is taking over a company whose assets are subject to an existing depreciation schedule.
There are times, however, when the buyer chooses to purchase the owner's ownership interest in the company. The Buyer may be intimately familiar with the business, such as a long time management employee looking to buy out his or her boss, and so has insight into liabilities that are not on the company's balance sheet. The owner of the business may provide the buyer financing on terms that are superior to those available to the buyer at the buyer's own bank. In that case, the ownership interest is often escrowed and transferred in increments as the payments are made. If payments are missed, the escrow agent transfers the ownership interest back to the seller. Finally, the buyer may want to purchase the owner's interest so as not, to disrupt existing contractual relations between the company and its customers, employees, and suppliers.
Inevitably, there are conflicts of interest between the buyer and the seller. Experienced and successful business lawyers will help identify these conflicts, and deal with them in a business-like, non-adversarial fashion. It is the client who ultimately makes the judgment call as to how to resolve the conflicts.
