In Part One of a three-part series on corporate transactions, we describe preliminary considerations around deal structure. In subsequent articles, we dive deeper into the advantages and disadvantages of asset sales versus stock sales.

As you probably realized long ago, one of the most effective ways in which to increase margin is through the scale provided by multiple locations. In this introductory article, we describe preliminary considerations around deal structure.

asset sales

Introduction

When selling a small business, the buyer and seller generally have two options. One, the buyer can buy all of the shares of the operating company being sold from its current owner(s).

Or two, the buyer can buy all of the assets of the operating company from the operating company itself. There are advantages and disadvantages to each of these alternatives. Some of them benefit the buyer and some of them benefit the seller.

Asset Sales vs. Stock Sales

The differences between a stock deal and an asset deal can be very substantial. These differences include the amount of work that must be done by the company’s managers and employees after the deal closes, the potential for unexpected liabilities, tax implications, and other business and legal considerations.

For example, asset deals often have some very substantial benefits for the buyer relating to taxes, corporate formalities, and potential unknown liabilities. They provide the buyer and seller with a lot of flexibility. However, the business interruption that can take place in an asset deal can be prohibitive. Asset deals may require informing and/or renegotiating contracts with employees, customers and suppliers.

Also, the tax issues are particularly important to consider. For example, while an asset deal may be beneficial to the buyer for certain income tax considerations, it may be problematic for other income tax issues. And other tax issues need to be considered as well, such as sales and transfer taxes.

Sometimes one type of deal would benefit the buyer while the other type of deal would benefit the seller. And, unfortunately, often buyers and sellers don’t think about many of these issues until well into the negotiation process.

Understanding the differences between these two types of deals is important and should be thoroughly considered to determine the benefits and drawbacks of both alternatives. It is often a good idea to seek the advice of competent legal counsel early in the negotiation process to determine which type of deal structure would benefit you the most.

Conclusion

HLA routinely handles corporate transactions for healthcare acquisitions and mergers. If you are thinking about purchasing or selling a business and want to learn more, please don't hesitate to contact us with any questions.

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