Get The Facts On Buying A Business

Many entrepreneurs get their start in the business world by Buying a Business that may already offer assets, clientele, or market presence. However, it is crucial to understand how you plan to buy the business—whether through an asset purchase or a stock purchase—and which of these options is best for you. That is why it is imperative to enlist the expertise of a Jurado & Farshchian business attorney who can advise you on this critical decision and guide you through the process.

Option One When Buying a Business: Asset Purchase

You can think of this as the “a la carte” options, because it allows you to pick and choose what parts of the business you want, rather than negotiating an “all or nothing” deal. This is a good option if you have an existing business that only needs certain assets—such as equipment or additional physical location—rather than an entire intact business altogether.

There are several other advantages to this approach. First, because you pick and choose the assets you want, you have an opportunity to see exactly what you are buying before finalizing the transaction. Buying the entirety of the business means you may end up saddled with assets or even liabilities you had not anticipated. This leads to the second advantage: you can buy only the assets you can afford to carry, thereby exposing you to a less risk. This is especially important for entrepreneurs who are just getting started.

There are two caveats to an asset purchase: one is that you must have an existing entity to hold the acquired assets, or else you must form one for this purpose. The other is that purchasing the assets of a business essentially breaks it apart, ending a business that might have offered more had it remained in intact. Hence why you may rather consider the second available option when buying a business.

Option Two When Buying a Business: Stock PurchaseUnlike an asset purchase, a stock purchase acquires the entirety of the business, transferring legal ownership to you as-is. It is sometimes insisted upon by sellers who do not want to layoff existing staff, though it may also be advantageous for buyers who want to own and operate an established and proven business, rather than dismantle what may already be working well.

The catch, however, is that this is an all or nothing arrangement: unless you decide on an asset purchase, you must buy the whole business and all the assets therein—good and bad. There is virtually no telling what weaknesses or problems may be lumped in with the business until you take ownership of it. A stock purchase is thus as risky as it is potentially rewarding.

Which is the Better Option for Buying a Business?The answer depends on a range of variables, not least of them your appetite for risk. Overall, asset purchases are safer than stock purchases, yet the latter may suit your interests better depending on your business goals or your ability to absorb a potential risk. Either way, this is not a choice to be made without legal expertise.

Jurado & Farshchian, P.L. has experienced business lawyers that have helped clients make these delicate decisions. They will be with you every step of the way to provide informed and dependable counsel. If you are faced with a business purchase and do not know how to proceed, call us today at (305) 921-0440 or send us an email to [email protected].

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