Is an Asset or Share Sale Right for You?
The decision to purchase an existing business is an enormous step in your career. While there is merit and a certain sense of accomplishment in starting your own business, buying a business mitigates a great deal of risk, helping to eliminate many of the potential pitfalls, stressors, and financial obstacles of a start-up. If your expertise or passion lies in optimization, growing what already exists, and building upon a business’ current operations, then the following information is essential for you as an entrepreneur.
Once you have researched the business, met with the owner, visited the premises, and had all your questions sufficiently answered, it is time to draft up your offer.
When drafting your initial offer there are a few things to consider:
Assets vs. Share
There are two primary ways to buy a business: either as an Asset Purchase or a Share Purchase. Knowing the difference will help you make a better offer. It is also important to note that an Asset Sale and a Share Sale will have different tax implications for both the buyer and seller. As each business transaction is unique, you may want to contact an accountant to walk you through the specific tax implications of each.
In an Asset Purchase, you are buying all of the assets the business owns. Assets can be tangible or intangible. If the business you are looking to purchase is not incorporated, then an Asset Sale is your only option. The business profile you will be provided with will have an exact schedule of what assets are being sold.
Share Purchases are often done when the business that is for sale is incorporated. In a Share Sale, you simply buy shares of the corporation from the existing owner. All assets (and sometimes liabilities) are included in the purchase (unless explicitly excluded in the profile).