Small Business Sales: ASSET or EQUITY (stock) sale?
--THIS OPINION ONLY APPLIES TO SMALL BUSINESS--
We are sometimes asked if it's better to sell as an equity sale vs. asset sale. My personal opinion is that for small businesses, the asset sale is preferred. If you are LLC then you do not have the option, so you needn't read further.
Asset sale pros:
This is the only option if you are not a large corporation.
Seller:
Allows you to pick and choose what to negotiate into the sale (both assets and liabilities)
Buyer:
The buyer is sheltered from debts that the seller had. I was personally relieved of this fact when we bought the yogurt company since several vendors came forward claiming that we owed them money but since I was a separate entity that had purchased the brand and assets, I was not subject to any outstanding payments due. Another tech buyer told me that they would have been subject to a 250,000 tax liability had they taken the business on as an equity sale. This is a very real benefits.
The Buyer is also no longer locked into contracts, can renegotiate. The buyer can also amortize goodwill for tax purposes.
Both:
Asset sales avoid securities regulation laws which may add in additional overhead and expense in the transition for both parties.
If there would have been shareholders who did not want to sell their shares you would not have to keep them in as partial owners.
Equity (stock) sale pros:
You do not need to re-title the business or assets.
You do not need to renegotiate good contracts (if they are favorable to the company vs. having new contracts.)
In Washington State, there is a one-time use tax on equipment for the sales or transfer. A stock transaction can avoid some or all of these taxes that apply in the event of an asset transaction.
With only one shareholder, an equity sale may be somewhat less complex than an asset sale.
This is not advice that should be acted upon, but merely for your consideration -- simply perception and opinion. You should talk to accounting and legal experts about this.
Here are a few resources that may help you have those conversations:
https://www.thebalancesmb.com/how-to-sell-a-business-asset-sale-vs-share-sale-2948477