Deals

Buying a business: assets or the company?

Issue

Should I buy the company's assets or the company itself?

Rule

In an asset purchase, the buyer generally chooses which assets and liabilities to take. In a purchase of shares or membership interests, the buyer steps into the company as it is.

Translation

You're buying its history too. Read it first.

Sellers often prefer to sell the entity, and buyers often prefer to buy assets. Taxes, contracts that can't be assigned, and licenses usually decide which structure works.

Due diligence is how you find what's hiding: tax filings, leases, customer contracts, employee obligations, and pending claims.

The purchase agreement then divides the risks you found, through representations, indemnities, and sometimes an escrow or holdback.