In the world of business sales, there are many options when it comes to buying and selling. Two of these options are stock (also known as shares) sales and asset sales. These two types of business sales are commonly experienced by businesses acquiring other businesses (or part of them), mergers and more. But when it comes to stock sale VS. asset sale, which type suits your goal? Let’s find out!
Before we look at stock/share sales vs. asset sales and learn the differences between them, it’s important to understand the difference between stock and assets before we begin.
What is Stock/Shares?
There are a few mentions of ‘stock’ when you talk about business. Commonly, stock is referred to the number of goods stored for consumer sale. Examples of this are groceries at Woolworths, or tyres at Bob Jayne T-marts. However, when it comes to stock sales, the term means something completely different. A stock sale refers to the number of shares being purchased from existing shareholders in the business – hence why it’s also referred to as a ‘share sale’.
What are Assets?
A business asset is an item of value owned by a business. Like stock, they can be tangible goods (such as vehicles, computers and furniture) or larger assets such as real estate. Unlike stock, they can also be intangible, such as intellectual property. The biggest consideration with these fixed assets is that they are not sold to the consumer. Fixed assets are only sold when selling part or all of the business.
Now that we’ve clarified the difference between the two, the difference between stock and asset sales becomes clearer…
Stock Sale VS. Asset Sale
An asset sale involves a buyer purchasing assets from the legal company owning the business in question, without assuming the liabilities of the said company/business (i.e. they are buying the assets of the business, not buying the company itself). An asset sale can be seamless, however, it can also be a complicated process, because an asset sale will need to take into account any business agreements and long-term contracts tied to the company in question and which would be crucial to the ongoing success of the business.
A more straightforward sale is a stock sale. Unlike an asset sale, stock sales do not require extra negotiation over business agreements and asset contracts, because they remain in place within the company. All that happens is that the new buyer replaces the seller as the shareholder and owner, meaning that the shares stay exactly where they are, which is in the company. For this reason, the process is often less complicated. However, a stock sale does require more due diligence in regard to the historical tax liabilities which remain with the company. It’s important to consult with your business Accountant when considering either option to fully understand the process and implications and what taxation due diligence requirements are necessary for the buyer and seller.
Here at Core Business Brokers, we want to inform, educate and involve our business buyers and sellers in the sale process. By sharing our wealth of expertise, you are equipped with the skills to make informed, smart business decisions. Got a specific question on the tip of your tongue? Give us a call on (02) 9413 2977, or email Roy directly at [email protected] or Rad, at [email protected]. We’ll be happy to lend a hand.