Business Law Basics: What’s the Difference Between an Asset Sale and a Stock Sale?

If you are trying to raise some capital for your business, two popular options that you may want to consider include asset sales and stock sales. Understanding what these options are, and the benefits of each, is an important step in deciding which route you want to take.

What is an Asset Sale?

An asset sale is when the business owner will retain their ownership in the business, but sell off specific assets of the company. This can include equipment that the business uses, licenses, trade secrets, patents or copyrights, and much more. These assets can often be quite valuable, and allow the business to get the money it needs, without giving up ownership.

Pros and Cons of an Asset Sale

An asset sale is a very popular option for business owners because it allows them to generate the money they need, without losing long-term interest in the company. This process, however, can also generate a greater tax burden than going with a stock sale, so that is important to keep in mind. The investor who is buying the asset may like the fact that they are getting a set asset for their money, so there is less risk involved than when buying stocks.

What is a Stock Sale?

A stock sale is simply selling off a portion of the ownership of the company in order to raise capital. One thing to keep in mind with this option is that it is only available to businesses that are incorporated. Sole proprietorships, limited liability companies and partnerships don’t have stock, so this wouldn’t be an option for those businesses.

Pros and Cons of a Stock Sale

Investors often prefer a stock sale to an asset sale because it will give them longer term returns. The potential gains of stocks is also going to be greater than would be possible with an asset sale. Of course, there is also a greater level of risk involved with the stock sale-if the company runs into problems, the value of those shares can plummet.

Which is Right for You?

Figuring out which of these two options is the right course of action for your business can be very difficult. Every situation is unique, so being able to weigh out the specific pros and cons based on your situation can be a challenge. Talking with an experienced attorney who can review all the details of both an asset sale and a stock sale will help ensure you make the right decision. Contact APH Law to set up a meeting with an attorney who can offer guidance with these important decisions today.

Written by APH Law PLLC

APH Law PLLC

When we founded APH Law PLLC in 2010, we did so out of a desire to connect business owners with more and better opportunities. No matter what industry you’re operating in, creating a strong foundation, preparing for the future, and protecting against challenges are key to long-term success. It is this kind of support that we take tremendous pride in helping businesses.