Generally speaking, the sale of a small business is structured one of two ways:an asset sale or a stock sale (for an LLC, it would be described as an LLC membership interest sale). There are important legal, tax, and business differences between the two structures, so buyers and sellers should be careful and, when possible, negotiate for a deal structure most advantageous to them.
In an asset sale, the buyer purchases the underlying assets of a business from the seller.The buyer can either buy all the assets or it can pick and choose which assets it wants. More importantly, the buyer will not assume responsibilities for any debts and liabilities of the seller unless it specifically agrees to in the Asset Purchase Agreement. Also, from a tax perspective, a buyer in an asset acquisition benefits from a new tax basis in the acquired assets based on the purchase price.The new basis often will allow a buyer to depreciate the acquired assets that may have previously been fully depreciated by the seller.In a typical small business acquisition, a buyer prefers to structure the acquisition as an asset purchase.
In a stock sale, the buyer purchases the entire company through acquisition of all the stock of the corporation (or membership interests of a limited liability company).In a stock sale, the buyer gets everything—assets and liabilities of the business—and simply steps into the shoes of the selling owner(s) of the business. Under some circumstances a buyer might be willing to acquire a small business through a stock sale, but more often than not it is the seller who prefers a stock sale structure.