What Is Equity Sale Agreement

A sale of shares is often preferred by the owners of a selling company because, in general, all known and unknown liabilities of the company are transferred to the buyer and sellers therefore avoid any persistent risk for such liabilities (unless expressly agreed with the buyer). Buyers often object to a share sale transaction, unless the company to be acquired has its own operating history or there are significant practical difficulties in entering into an asset sale, such as. B restrictions on the transfer of certain assets from the selling company to the buyer or onerous third-party consents required for the transfer of assets. In the context of a merger or acquisition transaction, asset purchase agreements have a number of advantages and disadvantages compared to the use of a share purchase agreement (or a share purchase agreement) or a merger agreement. In the event of a capital acquisition or merger, the buyer receives all the assets of the target company without exception, but also automatically assumes all the liabilities of the target company. Alternatively, an asset purchase agreement not only allows for a transaction in which only a portion of the assets are transferred (which is sometimes desired), but also allows the parties to negotiate which liabilities of the target are explicitly assumed by the buyer and allows the buyer to leave behind liabilities that they do not want to accept (or know nothing about). One of the disadvantages of an asset purchase agreement is that it can often lead to a greater number of change of control problems. For example, contracts held by a target company and acquired by a buyer often require the approval of a counterparty as part of an asset transaction, whereas it is less common for such approval to be required as part of a share sale or merger agreement. If the buyer is a private equity fund, family office or other private investment group, it is called a “financial” buyer. A financial buyer will usually try to achieve an investment goal by owning the goal, which is usually done over a period of five to seven years. However, there are certain responsibilities that a buyer may not be able to avoid, even if the purchase and sale contract provides that the buyer will not assume them. When selling a business, the buyer takes control by purchasing all (or almost all) of the target company`s assets or equity.

In the case of a share or capital transaction, the buyer acquires all rights, titles and shares of the owner in all the shares of the target, free and free of any privileges, enties and rights of third parties. If there are several owners, the purchase and sale agreement is usually accompanied by a calendar that describes the shares held by each of the owners. The buyer will want to ensure that he buys all issued and outstanding shares of the target. In addition, in an equity transaction, all assets and liabilities remain on target. Only the ownership of the target changes. In addition, in a share sale, a buyer does not have the advantage of recording the acquired assets at their fair value for tax purposes, which could result in the loss of a portion of the tax depreciation available to protect future income. Given this fact, buyers are sometimes drawn to a sale of assets rather than a sale of shares, as there are fewer concerns about undisclosed liabilities and better tax treatment. On the other hand, from an after-tax perspective, a seller may be better off making a share sale.

A smart seller should always ask a potential buyer to make an offer for both an asset sale and a stock sale, and choose the one that offers the highest after-tax cash product. In addition to the possibility of selling only certain assets and not the entire business, asset purchase agreements generally include detailed provisions on the transfer of the seller`s liabilities. .