Stock Purchase
An acquisition structure where the buyer purchases ownership shares directly from shareholders, acquiring all assets and liabilities of the entity.
A stock purchase is an acquisition structure where the buyer purchases the ownership shares (stock) of a company directly from its shareholders.
Stock Purchase vs. Asset Purchase
| Factor | Stock Purchase | Asset Purchase |
|---|---|---|
| What transfers | Entire entity | Selected assets |
| Liabilities | All transfer | Only assumed ones |
| Contracts | Usually transfer | May need consent |
| Tax basis | Seller's carryover | Stepped up |
| Complexity | Simpler | More complex |
When Stock Purchases Make Sense
- Non-assignable contracts: Licenses, leases, permits
- Fewer consents needed: Contracts auto-transfer
- Simpler execution: One transaction
- Seller preference: More favorable tax treatment
Stock Purchase Risks for Buyers
- Unknown liabilities: Buyer inherits everything
- Historical tax issues: Become buyer's problem
- Environmental liabilities: Transfer with company
- Lawsuits: Pending and future claims
Mitigating Stock Purchase Risks
- Thorough due diligence: Uncover hidden liabilities
- Representations and warranties: Seller certifications
- Indemnification: Seller covers breaches
- Escrow/holdback: Funds reserved for claims
- Rep and warranty insurance: Third-party coverage
Related Terms
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