Acquiring a small business: Should you buy stock or assets?

Acquiring a small business that is already established in the marketplace and has customers coming in the door is an excellent strategy that serves two different purchasers:

1. A start-up gets a jump-start on small business ownership by not having to start from a blank sheet of paper.  The existing location, customer list, even the phone number, has real value.

2.  An established business can use the growth-by-acquisition practice to provide an accelerant to augment the more deliberate organic growth.

Either way, both buyers have to take the same steps in making such an acquisition, including the due diligence, which includes making the decision of whether to purchase the company by buying the stock or allowing the existing business to dissolve and merely buy the assets.  Both have their own particular merits, but in the main, buying assets is typically the more likely choice.

Recently, on my radio program, The Small Business Advocate Show, I talked about how to make the “stock versus assets” decision with one of the resident attorneys in my Brain Trust, Cliff Ennico. We discuss specific examples of when you should buy just the assets of a company and when you should buy the stock. We also talks about when to incorporate and when to use a limited liability company (LLC).

Cliff Ennico specializes in legal and tax issues for small businesses and is a popular instructor at eBay University. He is a frequent contributor to Entrepreneur magazine and the author of The ebay Seller’s Tax and Legal Answer Book and Small Business Survival Guide.

I hope you’ll take a few minutes to listen to my visit with Cliff, and be sure to leave your own thoughts. Listen Live! Download, Too!

3 Responses to “Acquiring a small business: Should you buy stock or assets?”

  1. 3
    Chris Vestal Says:

    Thanks for this resource. It was very helpful!

  2. 2
    Ed King Says:

    I think the biggest advantage of buying an existing business is owner financing.

    Many times the only way the owners can sell a business is by asking for a small down payment and giving the owner a loan for the balance.

  3. 1
    Eric Says:

    Excellent summary. Must listen for buyers contemplating asset vs. stock purchase. Thanks for sharing!

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