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Business purchases/sales: Asset versus stock

The interests of business buyers and sellers often diverge when it comes to the decision between an asset deal versus a stock deal.  An asset purchase is often preferable to buyers from a tax and liability perspective but operational considerations may favor of a stock purchase.  A stock purchase usually allows a company's licenses and contractual relationships to continue.  However, the buyer may prefer to buy the assets of the business in order to obtain the  "step-up" (cost) basis of the company's assets.  26 US Code Section 338 provides a solution in certain situations by allowing the buyer to treat a stock purchase like an asset purchase for tax purposes.  Similarly, Section 336 allows a seller to make a similar election.  There are many, many factors to consider when buying or selling a business.  Consult with your attorney and CPA as early as possible in the process.

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Andrew Lingle