Asset Sale or Purchase
Buying or selling assets of a company has many details that should not be overlooked. The attorneys at Fisher Stone can facilitate a smooth transaction.
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Asset Sale or Purchase
An asset purchase is favored by buyers because it allows the buyer to choose which asset to purchase and does not transfer all of the target company’s liabilities to the buyer. Further, the purchase generally does not require consent from all shareholders of the target company. On the downside, an asset purchase will usually take longer than a stock purchase. Since the core of an asset purchase is transfer of company assets, the two parties need to take time to identify the pieces of assets to be transferred and the purchase price of each. Assets that may be sold include:
- Good will
- Real Property
- Books and records
- Machinery and fixtures
- Insurance policies
Different types of contracts may be needed to execute the transfer. In some cases, a third-party consent is required for the transfer of a contract right, making an asset purchase more difficult and longer than a stock purchase.
Asset Purchase & Tax
To the buyer – Generally, buyers prefer an asset purchase over a stock purchase because it allows the buyer to “step-up” the basis of the assets. This stepped-up basis in turn will create tax benefits to buyers as it increases the depreciation deductions that the buyer may take on the assets.
To the seller – From the seller’s perspective, an asset purchase will result in greater tax liability than a stock purchase. By selling an asset, the seller’s company incur tax based on the difference between the sale price and the basis in the asset, generally at corporate capital gain rates.
Asset Purchase & Liquor
If you are buying a restaurant with liquor stock, it is advised that you (1) find out if there are pending liquor license violations against the seller, and (2) ask the seller for a permit from the New York State Liquor Authority. If however you are buying a restaurant without its liquor, state in the contract that the seller should dispose of the liquor before closing.
Asset Purchase & Bulk Sales Law
Bulk sales laws are designed to assure buyers that the assets they purchase are free from claims of the seller’s creditors. To enjoy that protection, buyers may be required to make certain filings. For example, if you are buying the assets of a business required to collect sales tax under New York law, you need to file a notice no later than 10 days before buying the assets of the business. Failure to comply with the law might subject buyers to the outstanding sales tax liability of the target company.
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