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Transactions involving asset sales and stock sales

Every business transaction is unique and requires careful consideration of individual circumstances. This is particularly true when it concerns sales or purchase of your business.

Almost every deal is transacted either by an asset sale or a stock sale.

What is an asset? What is a stock sale?

Purchases and sales of corporations are complicated affairs, and usually take the form of either an asset sale or a stock sale.

An asset sale is where a corporation sells all, or nearly all, of its assets (tangible items such as equipment, goods, inventory, etc.).

A stock sale is where a corporation sells all, or nearly all, its stock shares.

Both of these transactions can achieve the same result, but they are different procedures, which require different legal documents to support them.

Deciding upon an asset sale versus a stock sale

Asset sales in New York State typically involve the filing of a Bulk Sale Notice to the New York State Department of Taxation and Finance. This must be submitted at least ten (10) days prior to the closing of the asset sale. A stock sale does not have the same requirement because purchasing the stock of a corporation typically means that you are also purchasing the assets that the corporation owns.

In an asset sale, the buyer is purchasing tangible items such as equipment, goods, inventory, etc. A buyer may obtain tax benefits accompanying the transaction due to the ability to step up the basis in the assets it purchases. The downside for buyers is that there can be difficulty in transferring certain types of assets due to various legal and title issues.

In a stock sale, a buyer obtains ownership of the business through the purchase of stock shares. Because of obtaining such ownership, it is also possible to convey assets to other parties because the title for these assets came along with purchase of the business.

It is important to put together the right buy-sell agreement however you decide to structure the sale. Whether it concerns stock shares or assets, you must determine which type of deal best suits your business goals. It is therefore helpful to have an attorney guide you through the process and draft the sort of agreement that is right for you.