Are you planning to invest in an incorporated business? One of the most significant decisions that often put buyers in a dilemma is whether to invest in shares or assets of the company. It is one of the key aspects that buyers and sellers need to agree on during the transaction.
If you need to delve into these core methods of business transactions, you need to understand the structure of asset and stock buying first. Here is what you need to know about an asset or share transaction.
Asset transaction
Asset transaction is investing in a few or all the assets of a company like inventory, contracts and lease agreements, equipment, and real property. Usually, the structure of this kind of transaction involves several complexities and nuances. That is why the buyer team needs to hire a lawyer. How about hiring a real estate lawyer in Kelowna with experience in handling business transactions? That way, you can make sure that the documentation for the transfer of each asset is smooth. Besides, other aspects require a lawyer’s intervention to deal with changes in the provisions of permit, contract, lease, and licence. Usually, third-party approvals are necessary when the control provisions change during the transaction.
Does asset transaction favour buyers?
Buyers usually prefer to go with asset transactions as it provides them the opportunity to choose which assets they should buy. In most cases, buyers prefer discussing with a law practitioner even if it is a real estate lawyer in BC who also has a great deal of knowledge and can share tips for buying a business. It will be easier for you to find out whether buying shares or assets is the right decision. Therefore, when investing in a business, discuss with the lawyer whether you are interested to buy real property, equipment, or inventory.
Several other reasons make buyers more in purchasing assets, and the major one is that it involves fewer risks. As a buyer, you can use those assets to create a new company and avert the risks associated with the one they purchase. Despite all those things that make asset transactions a favoured option, every buyer needs to research to make sure that the deal works in their favour.
Cons of an asset purchase
Along with those reasons that make asset transactions more favourable for buyers, some things may make this transaction disadvantageous for buyers as well. Want to know what they are? Ask a real estate lawyer in Kelowna like Peter Borszcz from BC Real Estate Law who is also extensively into conducting business transaction deals and offering the best advice to clients who need it. Some other complexities include risks when vendors refuse to sign contracts with the purchaser. Moreover, the employment agreements are usually needed to be written again and a few assets need to be retitled to the buying entity.
What is a share transaction?
There is no denying that share transaction favours sellers more than buyers. But that does not mean that buyers cannot buy shares instead of assets. One reason is that share transactions are much less complicated compared to buying assets. The only documentation required in this type of transaction is for transferring the shares. But you might still need to know why share transaction is a seller-friendly mode. One reason could be tax benefits like exemption from paying certain income taxes or it could be the personal income tax benefits.
Why buyers don’t prefer share transactions?
Have you ever wondered why buyers refrain from entering share transactions? The primary reason is that you will inherit all the liabilities of the company, including the assets. Now, very few purchasers know what the liabilities are at the time of the investment. That way, those who don’t know about the companie’s liabilities very well may fall prey to several risks. That is why a Kelowna real estate lawyer specialising in business transactions needs to intervene and make sure that appropriate due diligence has been conducted before both parties are ready to sign the deal. The best option would be to hold back the price for a while for you to assess the unforeseen circumstances.
What is your take?
When buying a company, you need to consider all those factors that play a significant role in the deal and all those aspects that may affect the deal. As a buyer, you need to judge all the tax and liability repercussions. Furthermore, you need to conduct due diligence searches to ensure that the deal proceeds smoothly. If you need help deciding whether to choose an asset or share transaction, make sure you consult with a reputed lawyer who has experience in dealing with business transactions.
Amilia Brown is a seasoned business writer & strategist who simplifies complex business concepts and turn them into engaging narratives. As a trusted business writer, she delivers actionable insights with precision.
