That sounds pretty obvious, but it can get tricky.
An asset purchase means that the company is selling you their assets, with some possibly excluded. However, when you purchase a company’s assets, it can include many items or all items, including the name / brand, phone number, website domain, and so on. The company being sold will have to provide you proof that it can transfer the assets free of any debt obligations.
Certain documents for an asset purchase will be required. For example an Asset Purchase Agreement and a Bill of Sale. You also would ask for a corporate resolution from the buyer and a copy of their corporate book to make sure the people selling the assets had the authority to sell them. The seller in turn could ask for the buyer’s corporate book and a resolution as well showing that the buyer had the right to buy the assets as well.
For both buyer and sellers, you always want to get tax advice. Sellers need to be careful to check into issues such a depreciation recapture, etc. Buyers need to know how the asset values are segregated for their own future handling of depreciation on the assets purchased. Again, you need to seek out professional tax guidance in any asset purchase regardless if you are the seller or buyer.
A stock purchase agreement is when you buy someone else’s stock in a corporation, just like a membership purchase agreement is when someone buys your interest in a limited liability company. In either case, you are buying an existing company. Beware of issues such as debt, or any pending or threatened litigation against the company you are buying into. By buying the assets, you can better protect from the “sins of the past” so to speak of a company currently in business.
Documents needed and used in these types of agreements needed are either a Stock Purchase Agreement or a Membership Interest Purchase Agreement, Bill of Sale, and any other documents needed. Corporations tend to have actual stock shares and a stock issue history report so you can see all shares issued. One hurdle is some smaller corporations tend to not have such reports, but that’s why you want to look at the corporation’s bylaws and articles, as well as any meeting minutes and tax returns for any S-Corporations. As to a limited liability company, the tax returns will be helpful if corporate documents such as an operating agreement are not available because you can look at the K-1’s to see who the owners are and what percentage the y own (at least at the time of their lats filing of tax returns)!
One issue we see a lot in these deals is seller finance. That’s another topic for another day, just a note that when you get or give seller finance, there are many issues to review prior to making a final decision.
Regardless of size, both an asset purchase or a stock/membership purchase pathways have pros and cons and should be decided on a case by case basis and aligned to your goals.