Asset Purchase vs. Stock Purchase in Virginia
WHAT IS AN ASSET PURCHASE?
In an asset purchase, the seller maintains legal ownership of the company. In contrast, the buyer purchases individual assets of the seller’s company and therefore only takes on those specific assets’ risks. Some of these assets include but are not limited to:
- Inventory
- Equipment
- Licenses
- Facilities
- Vehicles
- Trade names
WHAT ARE THE ADVANTAGES AND DISADVANTAGES?
| Asset Purchase Advantages | Asset Purchase Disadvantages |
| The buyer can specify the liabilities that he/she is willing to take on. | The seller’s tax cost is typically high, so the seller may insist on a higher purchase price. |
| The buyer can “step up” the basis of many assets to receive tax benefits. | The selling company’s assets need to be retitled in the name of the buyer. |
| The buyer can spend less time, money, and resources on conducting due diligence because unknown liabilities are not of the buyer’s concern. | Asset purchases do not qualify for tax treatment as a tax-free reorganization, and some states, including VA, impose taxes on the sale and transfer of assets. |
| Minority shareholders who do not wish to sell their shares can be forced to accept the terms of an asset purchase. | Nonassignable contracts cannot be obtained by the buyer without consent of the other party to the contract. |
WHAT IS A STOCK PURCHASE?
In a stock purchase, the buyer only purchases stock from the seller’s company. Any contracts, such as leases or permits, that accompany this stock are automatically transferred to the buyer, making stock purchases a more straightforward transaction.
WHAT ARE THE ADVANTAGES AND DISADVANTAGES?
| Stock Purchase Advantages | Stock Purchase Disadvantages |
| Stock purchases are typically less complicated, especially when the selling company does not have a large number of shareholders. | The buyer cannot handpick assets or liabilities and therefore purchases stock in a company that may have unknown or uncertain liabilities. |
| Costly retitles and re-evaluations are not necessary as they are with asset purchases. | The buyer must give up more time and money in order to uncover any potential unknown liabilities. |
| Nonassignable contracts can be obtained by the buyer without consent of the other party to the contract. | The buyer does not receive the “step-up” tax benefit of the asset purchase, and all assets and liabilities transfer at carrying value. |
| The buyer can avoid paying for transfer taxes that typically accompany asset purchases. | The buyer can be faced with problems presented by minority shareholders who do not wish to sell their shares. |
