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Asset Purchase vs. Stock Purchase: Which One is Better for You?

Nov 4

Do you have a small business and are looking to increase your revenue?

When it comes to increasing profits, there are many options out there. One option that can help is an asset purchase, just make sure you have a good business lawyer familiar with asset sales to help you out. Asset purchases involve the sale of assets to generate income for your company. These transactions allow you more control over how much money you make, but they also come with some risks that stock purchases do not have. In this blog post, we will discuss the benefits of asset purchasing vs. stock purchasing and when each type may be better suited for your needs!

What is Asset Purchase or Sale

An asset purchase is a type of acquisition that occurs when one company purchases another company for its assets. The buyer then liquidates the acquired firm's assets to raise cash and pays the seller for the remaining, non-liquidated assets. This form of business transaction is generally less expensive than buying a company outright, as it does not require paying a premium on top of all the tangible and intangible value in an organization.  In order to properly conduct an asset purchase, buyers should have knowledge of how each individual asset can be valued so they know what price they are willing to pay. Sellers will also want to get as much money out of their original investment as possible by being aware that some valuation methods are more favorable than others at any given time.

Benefits Of Asset Purchasing 

The benefits of asset purchasing are that it allows you to purchase a business with cash, without the need for financing, and no need to worry about seller financing. In addition, there is often more flexibility in negotiating price because sellers know they have buyers who will not be looking for seller financing or other concessions.

What is Stock Purchase

Stock purchase is a term used to describe the acquisition of shares in a company. Shareholders are entitled to dividends, voting rights, and a share in the residual assets after repayment of creditors. A stock purchase can be made through an exchange or privately from another shareholder. The difference between buying stocks on an exchange, versus going directly to the shareholders is that with exchanges, there will be more information available about the company’s financial status as well as price fluctuations over time. Investors may choose not to go this route if they don't feel comfortable taking on this additional responsibility for research and accuracy when it comes to reporting gains/losses on their taxes. 

Benefits Of Stock Purchase 

When purchasing stocks, there are many benefits to consider. The first and most obvious benefit is that you have the opportunity to make money. You also will be able to diversify your portfolio by investing in different companies and industries as well as get a higher return on investment than other investments such as bonds or cash. Another benefit of stock purchasing is that it can provide you with tax advantages since capital gains from selling stocks are taxed at lower rates than ordinary income like wages or interest income. When investors buy stocks, they use their own money so if the company goes bankrupt, they lose all of their invested funds rather than risking someone else's life savings which would happen with bank deposits for example.

Whether you are buying a business, commercial property, or other assets, it is important to understand the differences between an asset purchase vs. stock purchase before making your decision. An asset purchase will give you more control of your investment since there is no voting power for shareholders and can be done without paying any taxes on capital gains if certain requirements are met. A stock sale, in contrast, may offer greater liquidity but also has higher potential risks related to company performance and dilution of ownership over time. For help with understanding these two options better or for assistance with anything else that falls under our purview as Las Vegas Business Lawyers (including purchasing a franchise), contact Raich Law PLLC today!