We deal with a lot of owners that are buying or selling their businesses. As you can imagine there is a slew of questions that we get, but this is one that comes up often. We wanted to give you some insight into the assets that are included in an “asset sale”. Read more about this below.
Small, privately owned businesses are most often sold as asset sales as opposed to a stock or equity sales. The size of the business is relative depending upon the industry the business operates within according to the Small Business Administration (SBA). For a number of industries, under 500 employees are considered small. For others, it may be up to 1,500 employees.
Privately owned companies are sold as “asset sales”. Although the larger of the small ones may be sold as an equity or stock sale. Again, it depends upon the needs and desires of the buyer and seller and the deal structure that is preferred.
An Asset Sale is a transaction in which only certain assets (and perhaps some liabilities) are transferred to a buyer who becomes the new owner of the business. Typically, only the operating assets (assets needed to conduct business operations) are transferred to the buyer.
Large business transactions generally are done as stock or equity sales (although they may also be done as asset sales). In a stock sale, the stock or equity (which includes all assets and liabilities) is transferred to the buyer. This transfer represents the entire equity of the company.
Most buyers of small, privately owned companies prefer to purchase the assets because there is less risk. Purchasing equity means that the buyer assumes all known and unknown liabilities from the beginning of the entity’s existence. In an asset sale, the buyer doesn’t assume any of the seller’s liabilities unless the liability is explicitly identified and the buyer agrees to assume it.
Owners in today’s market should at minimum speak with a broker about their exit strategy, so they are ready to exit on top or have a plan in event of the issues during the sales process. NJ Broker Plus is here to help you buy or sell your business. Contact us today to learn more about how we can help!
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