Your Legal Options for Selling and Purchasing a Business in Plainfield, Illinois

 Posted on February 10, 2023 in Business Law

Business Purchase Attorney in Plainfield: Drafts the Written Agreements and Protects Your Financial and Business Interests

Methods of Acquiring a Business: Stock Purchase, Asset Purchase, or Merger 

As experienced business attorneys, we know that purchasing or selling a business can be a complex and overwhelming experience, both for the buyer and seller. The stakes are high for everyone involved, and both the buyer and seller want a good deal for themselves. Various aspects must be considered, as well as careful consideration and disclosure of all potential liabilities that may surface. It is crucial to ensure you know your rights and responsibilities in the buying and selling process and that they are clearly defined in a contractual agreement.

When buying or selling a business, there are several ways to go about the sale. However, the three most common ways of acquiring a company are a stock purchase, an asset purchase, or a merger. You must be aware of your options and what each entails to ensure the correct procedure is chosen and that it will benefit both the buyer and seller of the business to the fullest extent.

Option #1: Stock Purchase

A stock purchase takes place when the buyer of the business purchases either all or a controlling majority of the selling company's voting shares. Under a stock purchase, the legalities of the selling company, such as the name, managing operations, and procedures, will remain the same unless these legalities were previously discussed in the Stock Purchase Agreement. 

What are the Benefits of Acquiring a Business Through a Stock Purchase?

There are significant advantages for a seller and buyer of a business that chooses to do so through stock purchase. The seller benefits by releasing the controlling majority of voting shares to the buying company; thus, the selling company is removed from the potential liabilities. The buyer benefits from a stock purchase because the legalities remain the same, resulting in less business disruption and a more efficient transfer of control. A significant reason for a stock purchase agreement is access to a lawful license or other assets that cannot be acquired during an asset purchase agreement.

What are the Disadvantages of Acquiring a Business Through a Stock Purchase?

Even though there are several benefits to a stock purchase, it is essential to consider some disadvantages to making the best decision. There can be some disadvantages for the buyer, mainly. 

Under the stock purchase approach, the buyer does not need to buy all voting shares to gain control of the company, and they only need a controlling majority of shares. If the buyer does not acquire 100% of the voting shares, the buyer must go against the minority shareholders that still have a voting stake in the company. If one of these minority shareholders opposes the purchase, the transaction will not go through. If the selling company is not a closely held corporation or if the selling company has multiple minority shareholders, likely, a stock purchase is not the best decision for buying and selling the business.

Option #2: Asset Purchase

An asset purchase gives the buyer of a business more freedom and, thus, is often intriguing to buyers. In this business purchase, the buyer can buy some or all of the assets within the selling company. These business assets can include things such as contracts or intellectual property rights. Any assets the buyer purchases will also have previously associated liabilities. Any assets not purchased by the buyer will stay with the seller and must be accounted for in the winding down of the business, including any liabilities associated with the unsold assets.

What are the Disadvantages of Acquiring a Business Through a Stock Purchase?

A disadvantage of an asset purchase is that it can be time-consuming, depending on what the buyer is purchasing. For example, if the buyer only buys a portion of the business assets. In this situation, all assets (and the accompanying liabilities) must be distributed before the sale goes through, which can result in a longer timeframe. 

Additionally, if contracts are involved, third-party consent may also be required because the party to a contract is changing, and stockholder approval may be necessary if most assets are sold. 

Further, an asset purchase may not be the most enticing option for sellers who wish the sell the entire company. The sale of assets does not automatically dissolve the company because the selling company must account for any unsold assets and liabilities the buyer did not purchase.

Option #3: Merger

A merger occurs when two separate companies come together into a single company. A union can result in either one of the two respective companies becoming the merged company or entirely creating a new company because of the merger. 

What are the Benefits of Acquiring a Business Through a Merger?

The main benefit of a merger is that it is simpler than a stock and asset purchase. In addition, since the entire company merges, there is no need to specifically lay out the assets that are being transferred, making the process generally a quick one.

What are the Disadvantages of Acquiring a Business Through a Merger?

One disadvantage of a merger depends heavily on who the surviving entity is. If the surviving entity is one of the merged companies, it will take the dissolving company's assets, along with all of its liabilities. Additionally, because a majority shareholder approval is necessary, if too many shareholders are against the merger, it cannot occur.

Experienced Plainfield Business Sale Attorneys

Gateville Law Firm concentrates on business transactions involving asset purchase agreements and commercial real estate in Will and Kendall County. Unlike most law firms, we have significant tax, business, asset protection, and estate planning legal expertise that is required to guide business and franchise owners in selling, purchasing, and leasing commercial property.

We can prepare legal documents with the required precision or represent you in negotiations that can significantly impact your business and family. Our firm knows the comprehensive legal issues and strategies to determine the best option for you and your goals.

Contact Gateville Law Firm to assist you with purchasing and selling a franchise in Oswego by calling us at 630-780-1034 or via the online form on our website.