Stock Sale Vs. Asset Sale Table

Asset Sale

Stock Sale

Legal Risk

No legal liability for the corporation prior to the purchase

Legal liability for the corporation prior to the purchase can be mitigated if seller is willing to sign an indemnification agreement

Cash Flow

Most of the assets purchased will be depreciable over 3-30 years with the average being approximately 10 years. This means that you may write off approximately a tenth of the purchase price every year. When you sell, you typically pay back the government for all the deductions you took.

Advantage: Time value of money

Low depreciable asset base means you do not get benefits of the excess depreciation you can take. On the upside, there is no depreciation recapture tax at the time of sale.

Governmental

Administrative work to the extent you need to files Corporation, tax & employment application before the close of escrow.

Corporation, tax & employment numbers & documentation in place – any changes can be done at a convenient time at your own pace.

Other Taxes

Sales Tax on FF&E

No Sales Tax

Employees

Rehire employees – administrative hassle with hiring, benefits, payroll processing, etc. before the close of escrow

Employee contracts continue. Any changes can me made at a convenient time and pace.

Workers Comp

Workers comp rate could potentially be higher – sometimes significantly – you need to determine the impact and the net cost.

Workers comp rates lower than yours? If so, you benefit from the lower cost and you may even be able to move some of your staff under this umbrella if it makes sense.

Customers

May need to renew or renegotiate contracts

Customer contracts likely to continue with minimum hassle

Vendors / Suppliers

Re-establish contracts – negotiate transfer of leases and contracts – at the minimum you have administrative hassles and in some cases you may need to come up additional money for deposits.

Vendor contracts continue. If any of the vendors offer superior services at better rates, you may move some of your existing business under the same umbrella.

Bulk Sale

Need to conduct bulk sale in most cases – costs approximately $600 at current rates and takes about 20-25 days – this process delays the transaction.

No need to do bulk sale – which means you close the transaction faster, cheaper and thus enjoying the benefits of the cash flow sooner. None of the creditors are aware of the transaction unless you choose to tell them.

Other

Could consolidate book keeping, tax, and other regulatory filings with current entity to simplify operations.

Need to continue the book keeping, tax, and other regulatory filings necessary to keep the entity in compliance.