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Differentiate between Asset purchase method and stock purchase method
In business, whether you are buyer or seller, the transactions can be made either in purchase and sale of assets or in purchase and sale of common stock. The buyer or seller can choose their option (there can be various reasons in choosing their option).
An asset purchase transaction is the sum of sales of individual assets and agreed upon liabilities. In stock acquisition, ownership transfer will take place and the entity has the same assets and liabilities.
In this, the legal entity will not change but the buyer will purchase individual assets (equipment's, goodwill, inventory etc.). An asset sale does not include cash and the seller retains long term debt obligations. It includes normalized net working capital (accounts receivable, inventory, and accounts payables)
It has less complex transactions than asset purchase. This acquirer buys stocks of the target company (both assets and liabilities). Permits and leases of Target Company automatically transfer to the acquirer. For this reason stock purchase is the most preferred and straightforward one.
The major differences between asset purchase method and stock purchase method are as follows −
|Asset purchase method||Stock purchase method|
|Ownership is not transferred.||Ownership is transferred.|
|It claims the tax benefits.||Can't claim tax benefits.|
|Complexity is less.||Complexity is more.|
|Employee agreements can be renegotiated.||Employee agreements can't be renegotiated.|
|Buyer can choose risk and liabilities.||A buyer has no option to bear risk and liabilities.|
|Ownership is neither lost nor exchanged.||Ownership is lost and exchanged.|
|Less prevalent.||More prevalent.|
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