Buying the privately held Business - Asset purchase vs. stock purchase

Most sales of privately held businesses in Massachusetts are really sales of the discreet business assets rather than sales of the business entity. In other words, instead of purchasing all of the stock of XYZ Corporation, the business lawyer will advise that the client purchase the inventory, equipment, trade fixtures, business name and other assets of XYZ Corporation. The reason for structuring the transaction in this manner is simple. In most asset sales, the purchaser ordinarily acquires the assets of the business, but not the liabilities. ( There are certain types of asset sale transactions which can create Successor Liability, provided that certain criteria are met relative to the continuity of business and management, but those situations are the exception, and your business lawyer should review your transaction with you and make sure that you do not fall within this limited area under Massachusetts law.) In a stock sale or other sale involving the purchase of the business entity, the buyer is purchasing both the assets and liabilities of the business.

While a good business attorney will often protect his or her client through several vehicles, including assisting the client in due diligence to identify potential liabilities and insisting on representations from the Seller that no undisclosed liabilities exist, the prudent and experienced business lawyer will use all of these tools, as well as structuring the transaction to create the least exposure for the client.

Occasionally there are times when a buyer will purchases the stock of the corporation instead of its assets. Reasons for doing so may include tax considerations (Seller receiving equivalent stock for transferred stock), non-assignability of certain favorable contracts which the buyer desires to acquire and other considerations. Typically however, the asset sale is the favored vehicle of Massachusetts business lawyers in sales of private businesses.

The purchase or sale of a business is not like the sale of real estate, a motor vehicle or a piece of equipment. Each party to the transaction needs to be represented by an attorney having specialized knowledge in the area of business law in Massachusetts. Parker | Scheer has helped hundreds of business purchasers and sellers sort through the complexities of business transactions. Should you need help with yours, please contact Barry Scheer.

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For more information on shareholder lawsuits or if you are seeking a Boston business lawyer for any other needs, please contact Barry Scheer. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.

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