Shares vs. Assets

When considering to buy or sell a business, you must consider whether you are buying or selling the shares of the business or the assets of the business. Here are a few pros and cons of buying/selling shares/assets from both the sellers and buyers perspective:

As a Business Sellers:

5 Pros about selling shares:

1.Tax free capital gains up to $800,000

2.No need to transfer title of assets

3.Lower legal costs

4.No need to allocate and negotiate cost of assets

5.No need to renegotiate operating leases

5 Cons about selling shares:

1.Cannot use the company for future ventures

2.Cannot use the operating name

3.Need to indemnify purchaser for undisclosed abilities

4.Certain key employees may leave due to ownership change

5.May lead to lower sale price since purchaser may lose tax advantages

5 Pros about selling assets:

1.No need for any working capital adjustments to the sale date

2.Can continue to use the company for future ventures

3.Losses continue in the company to apply to future profits

4.No indemnities required

5.Increase in purchase price due to tax advantages to purchaser

5 Cons about selling assets:

1.Income tax due on asset gains and recapture of amortization

2.Key employees may be terminated

3.Must renegotiate all operating leases

4. Property rental will continue if purchaser moves locations

5.Legal costs incurred for the wind-up of the company

As a business buyer:

5 Pros about buying shares:

1.Obtain assignable contracts without 3rd party consent

2.Acquire all the employees to continue operations

3.Avoid any excise taxes

4.Ne need to incorporate a new company

5.Less potential tax on the future sale of the shares

5 Cons about buying shares:

1.Cost of assets remain unchanged for tax purposes

2.May be required to purchase undesirable assets

3.Acquire all liabilities including potential undisclosed liabilities

4.Acquire undesirable contracts

5.No choice in which employees to keep or terminate in the short run

5 Pros about buying assets:

1.Increase in capital cost of assets for tax purposes

2.Pick and choose which assets are desirable

3.No worries about undisclosed liabilities

4.Pick and choose key employees while terminated redundant ones

5.Choice of location to operate the new business

5 Cons about buying assets:

1.May lose potential loss carry forwards to apply to future profit

2.May lose potential Research & Envelopment tax credits

3. Increase legal cost due to asset title change

4.There may be potential liens on the assets

5.Purchase price may increase since seller will incur a greater tax liability

From The Desk of BizON

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