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I have over 22 years of experience guiding business owners in the multi-stage process of buying or selling a business including:
The purchase or sale of a business is a complicated venture, and requires in-depth knowledge of and familiarity with the law of business associations. Among the many decisions you must make is how to structure the transaction itself, which will dictate legal issues, affect the tax aspects, documentation requirements and operations of your business. The transaction can be structured as a: asset purchase, stock purchase, membership interest acquisition, merger or consolidation.
Asset Purchase: Consists of a purchaser buying all or specified assets of the selling entity. As the buyer, you may prefer this structure so you can (i) select which assets and liabilities to assume; and (ii) reduce, but not entirely eliminate, exposure to possible unknown or contingent liabilities. However, this type of transaction i s not always available, such as when there are certain sophisticated business-related licenses, trademarks, leases or contracts that are not assignable or that are difficult to assign.
Stock or Membership Purchase: The purchaser directly acquires ownership of the shares or membership interests (some or all) in the target entity. The legal and corporate status of the entity remains the same during and after the transaction. As the seller, this method is preferred because it guarantees the transfer of both the assets and corporate liabilities. If you are the buyer, there are ways you can structure a stock or membership purchase to maximize your own protection. This includes establishment of an indemnification agreements and holdback arrangements (delayed payment of the full purchase price, hold funds in escrow, etc.) to ensure you are reimbursed if you are subsequently made to pay the seller’s obligations.
Marc J. Soss, Esquire
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