The role of the financial broker is strictly to locate funds for the transfer of the business, whether the sale is an asset or stock one. The business intermediary, sellers financial consultant, tax advisor, and or attorney are the decision makers in this process.
Both the asset sale as well as the stock sale have very specific tax liability as well as legal liability implications. With the stock sale, all liability that was against the original Corporation is now transferred to the new corporation. Hence, the new buyer is 100% liable for all previous lawsuits, as well as future lawsuits that may even be derived prior to the transfer of the business.
An asset sale, unlike the stock sale presents no liability for past actions prior to the date of transference. Both asset sale and a stock sales have specific requirements as to notice, bulk sale transfer, and other escrow requirements.
There are certain times where a stock sale will be the only logical solution as it relates to the transfer of the company. For example, we are dealing with a client right now who has numerous government contracts that would not transfer to the new buyer if the sale was an asset one.
Generally speaking, most small businesses are transferred as an asset sale, with the new buyer starting fresh, changing the name, as well as the image. On the other hand, most large businesses that are transferred are done as a stock sale.
In conclusion, please be aware that there are separate purchase agreements for an asset sale as well as a stock sale. The covenants are very different in each of these two sales. To learn more about these differences read the purchase agreeements.
For more information on the sale of businesses, and the financing of them, visit loanforbiz.com.