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What is the stock acquisition?
If the buyer wants to acquire stocks of the targeted company directly from selling to the shareholders, then that acquisition is called stock acquisition. In this, a buyer will get the ownership in both assets and liabilities of the business.
In stock acquisition, the buyer sees a potential growth in a particular company’s stocks and hence, the buyer may feel that the current liabilities are manageable or minimum. Buyer will prefer stock sale without necessity of ownership transferring of each stock. This kind of acquisition is a strategic decision of corporate finance roles.
Factors
The factors to be considered in stock acquisition are as follows −
- Includes both assets and liabilities.
- Viable option for buyer, if he needs tax writes off.
- Both legal and financial liabilities are included.
- Financial and legal risks.
Tax implications
Given below are the tax implications with regards to the stock acquisition −
- Not subject to bulk sale Act.
- Buyer assumes the existing tax status.
- Personal liabilities and loans (to the owner) are removed.
- No purchase price allocations.
- Tax attributes get carryover for tax purposes.
- Other tax attributes (net operating losses etc.)
Advantages of stock purchase
- No re-valuations and retitles for individual assets.
- Buyer can avoid taxes (for transfer).
- Buyer gets non-assignable license and permit without having specific consent.
- Simple and commonly used method than asset acquisition.
Disadvantages
Buyer may not get a handpick of assets and liabilities.
Buyer gets all assets and liabilities at carrying value.
Goodwill exists in the form of a share price premium if it is not tax-deductible.
It is a complicated process when a target has more shareholders because they have to deal with securities laws etc.
Sometimes shareholders will not sell their shares which drag the process and cost of acquisition is increased.
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