Tuesday, August 31, 2004

Selling your company
with Gina Bienkowski

Q. I’m selling my company and the terms “stock sale” and “asset sale” are used. If I want cash up front and not buyer’s stock, should I insist on an “asset sale”?

A. Not necessarily. Generally, the terms “stock sale” and “asset sale” are used to define what a buyer is purchasing from you. It’s important not to confuse this with how a buyer will pay for the acquisition - i.e. cash, notes, or buyer’s stock. The term “asset sale” means that the buyer acquires from the selling company the assets that are listed in the Purchase Agreement. These usually include equipment in the warehouse and in patient homes, patient lists, telephone numbers, etc. A buyer may assume some of the seller’s debt and take over the facility lease. But, again, in an asset sale, this is stipulated in the purchase agreement. The term “stock sale” means that the buyer acquires the stock from you, the owner of the selling company. Although from a business standpoint, the same assets and liabilities change hands, the transaction is taxed differently. The primary reason to do a “stock sale” is to avoid double taxation for the seller of a C-Corporation. There is no tax benefit to the seller of a sole proprietorship, S-Corp, or LLC, and buyers are adverse to the additional liability/risk exposure a stock sale involves. If a stock transaction does occur, the buyer generally lowers the sale price of a stock deal to offset the higher taxes. Whether a transaction is a stock or asset sale doesn’t usually affect the payment terms proposed by the buyer. Transaction type and payment method should be negotiated separately.

Gina Bienkowski is vice president of Ultimate Resource, specializing in mergers and acquisitions. She can be reached at 610-353-1321.