There is more than one way to buy or sell a business or transact in real estate. When transacting, there are two options: share sales and asset sales. An experienced business and real estate attorney can help you determine whether a share or asset sale is most appropriate, and can help you navigate from the planning stage through to closing. The implications for choosing one or the other are vast and should be investigated at length with experienced legal counsel. At Palumbo Law, our attorneys have advised buyers and sellers throughout Rhode Island, Massachusetts and Connecticut in the acquisition or disposition of businesses and real estate and are readily available to provide the exceptional counsel you need.
Share Sale vs Asset Sale
While generally achieving the same goal of buying or selling, share and asset sales are markedly different. In a share sale, the ownership of the corporate entity itself is transacted. In contrast, in an asset sale, only the assets (property, equipment, etc.) are sold. While these two options may sound similar, their legal implications and requirements are not.
First, in order to conduct a share sale, the business must be an incorporated entity such as a corporation or limited liability company (LLC). Assets of all sorts (cars, equipment, property, etc.) can be held in an incorporated entity – holding property in an LLC is common for real estate investors. If the business is not an incorporated entity or the property is not held in an incorporated entity, then a share sale is not possible. If this is the case, an asset sale is required.
In a share sale, the ownership of the corporate entity is transacted rather than individual assets. This means that the buyer acquires all of the corporate entities’ assets and liabilities, both known and unknown. In contrast, an asset sale is a transaction of only the assets. This means that general corporate liabilities are not transferred to the purchaser. Asset sales also allow for certain aspects of a business to be sold, such as selling a business but the buyer retaining the name.
Consider the example of Stacy who owns three commercial properties in an LLC. If Stacy wishes to sell the properties, she has two options: she can either sell the LLC in a share sale to the buyer, which will hand over control of the LLC and its assets and liabilities, or she can sell the three properties individually or together in an asset sale.
There are differing tax implications relating to share and asset sales that should be reviewed with an experienced business and real estate lawyer. These tax implications differ between buyer and seller, and thus need to be fully considered when structuring a transaction.
Real Estate and Business Lawyer in Rhode Island, Massachusetts and Connecticut
At Palumbo Law, we have advised thousands of investors and business owners on the buying and selling of businesses and real estate. Whether you’re buying your first investment property or selling your business, our attorneys have the experience and skillset to structure the transaction based on your individual needs. If you are considering buying or selling property or a business, please contact our office to set up a consultation or complete the contact form.