Because every business is unique, every deal involving a purchase or sale will bear numerous, distinct details that need to be addressed from a structuring point of view. Still, there are just three basic options for buying or selling a business: Stock purchase, asset acquisition, or a merger of the companies. The Illinois Business Corporation Act contains many provisions regarding the requirements, but there is little information on why you would choose one alternative over another.
You can trust an Illinois business law attorney to handle the details since negotiations can be challenging and you will need to account for tax issues. However, it is important to understand your options if you are considering buying or selling a business.
- Stock Purchase: With this option, the buying company purchases a controlling majority – or all – of the target entity’s voting shares. As such, the buyer is the owner of all the selling company’s assets, accounts receivable, and liabilities. The benefits for the seller are being released from company liabilities and favorable tax treatment. For the buyer, a stock purchase is less disruptive to business operations as compared to integrating two companies. The downside is that the buyer could inherit significant legal and financial issues from the seller. Plus, unless the buyer acquires all voting shares, the company must contend with minority shareholders.
- Asset Purchase: There is the option of buying the selling company’s assets with cash, stock, or other funds. Along with acquiring assets, the buyer will also assume all liabilities associated with them. Legally, the seller continues to exist as an entity and usually winds down shortly after the transaction. The primary advantage for the buyer is being able to identify and choose specific assets, and not take assets that carry the burden of liability. However, the buyer will not own licenses or permits, which can be extremely valuable.
- Mergers: In short, a merger is a transaction in which two distinct organizations agree to combine and form a new entity. The arrangement typically starts through a stock purchase and/or asset acquisition; then, the companies unite in operating the business. The end result could be reconstituting either the buyer or seller, or the companies make a fresh start.
The primary advantage of mergers is that the process tends to be simple and efficient – for both organizations. All assets, stock, contracts, licenses, and permits flow to the new company. Of course, all liabilities do as well. You should also keep in mind that shareholder approval is necessary, which could prevent a merger if too many are against the transaction.
Contact a Naperville Business Law Attorney for More Information
These are just a few of the issues to consider with business acquisitions, but the information should convince you of the importance of retaining experienced legal counsel for assistance. Each of the three main structures has its own pros and cons, so you will need advice and counsel through the decision making process. To learn how our team at The Gierach Law Firm can help, please call 630-756-1160 to schedule a consultation with an experienced Naperville business law attorney.
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