Asset Purchase v. Stock Purchase, Which One Is Better?

Stock Purchase Agreement vs. Asset Purchase Agreement: Key Differences

When acquiring a small business, the structure of the deal is critical. Two common forms of acquisition are the Stock Purchase Agreement (SPA) and the Asset Purchase Agreement (APA). Each has its own advantages, risks, and tax implications.

What Is a Stock Purchase Agreement?

In a Stock Purchase Agreement, the buyer purchases the seller’s shares in the company. The buyer takes ownership of the entire business, including its assets, liabilities, contracts, and employees.

Advantages:

• Simpler transaction, as the buyer assumes all assets and liabilities.

• Continuity for customers and employees, since the company structure remains unchanged.

Disadvantages:

• The buyer assumes all liabilities, including any hidden or unknown issues such as pending lawsuits or debt.

What Is an Asset Purchase Agreement?

In an Asset Purchase Agreement, the buyer purchases specific assets and assumes selected liabilities of the business. This could include inventory, intellectual property, or equipment.

Advantages:

• The buyer can exclude unwanted liabilities, offering more control over what they are acquiring.

• Tax advantages, as the buyer can allocate the purchase price to assets that offer quicker depreciation or amortization.

Disadvantages:

• More complex negotiations, as the parties must agree on which assets and liabilities are included in the deal.