Business acquisitions are generally either structured as stock purchases or asset purchases. Stock purchases are when you buy the equity in a company, and asset purchases are when you buy the assets of a business.

While they may seemingly accomplish the same thing, buyers usually strongly prefer asset sales. This is for a few reasons, but the main one is that the buyer can start with a "clean slate": Their own corporate entity, their own equity structure, and a fresh start that doesn't involved the previous owner.

Many argue that asset sales limit liability; if you buy the equity of a business, you may be on the hook for liability issues that come up years before you owned the business (though there are exceptions to this, depending on your state). Here's a quick explanation of how this concept works:

Today I'm going to cover how your asset sale should be structured.

This post is inspired by a great post from Eric Pacifici.

SMB Attorney @SMB_Attorney Business buyers — We've had to enforce this legally a few times, so pay attention. In an asset deal (which you almost always want as a buyer for reasons I won't go into here), it's crucial to structure the list of assets you're acquiring very broadly. Sometimes, with… https://twitter.com/i/web/status/1805579379222642955 7:30 AM • Jun 25, 2024 13 Retweets 243 Likes Read 24 replies

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Eric says that your asset sale should be broadly written.

You don't want to be in a position of listing every single asset specifically.

There's a huge problem with doing it this way: As the buyer, you don't know the business well enough to list every asset in detail!

It would be very easy for the seller to let you leave out a few key assets, which they then walk away with.

I've heard countless stories of sellers taking a vehicle (I use it as my personal vehicle, therefore it doesn't belong to the business!) or equipment that the buyer didn't know about.

Your asset purchase agreement should instead broadly define all assets that are used by the business as the assets that you're purchasing.

One of the replies to Eric's post made a good point:

There will be exceptions to the assets being purchased, like the seller using the company warehouse to store a personal item at the time of closing. But it's much easier for the seller to explicitly identify those few exceptions and exclude them from the asset purchase agreement, rather than have the buyer identify every single asset being purchased.

To sum it all up, lenders like to understand (1) what type of sale it is (asset vs. stock), so make it clear, and (2) which assets are being purchased so that they can underwrite the deal. #2 can seem tricky since I just told you to NOT make an exact list of assets in your purchase agreement. But, it's actually more important to make sure your agreement is clear that you're buying all the assets used in the operation of the business. Then the lender can do their own due diligence on exactly what assets are being purchased.

A greater risk to you is making a specific list of assets and signing the agreement, only to later find out that you're not actually getting several key assets you need to run the business.