When it comes time to sell your business, you have two main options: an asset sale or a stock sale (often called share sale in the UK).
In general terms, an asset sale involves the transfer of ownership of specific assets within a business, whereas a stock sale transfers the stocks (or shares) of a company to a new owner so that they own it in its entirety.
But which is going to be most beneficial to you?
In this article, we’ll compare the two selling methods in detail so you can understand the key factors involved in making the decision.
Please note: this article is not intended to provide legal or tax advice, but rather to present the differences between the two selling methods. When the time comes to buy or sell a business, we strongly recommend talking to a range of professionals who can provide their specific expertise.
What is an asset sale?
An asset sale means that you are selling tangible and intangible assets that are associated with your business.
The buyer purchases individual assets such as inventory, equipment, vehicles, real estate, and intellectual property such as patents, copyrights, and trademarks.
In relation to an eCommerce or Amazon FBA business this would usually include assets like Amazon listings, Seller Central accounts and Shopify stores.
With asset sales, the transaction is carried out between the company and the buyer of the business, meaning the owner of the selling company retains legal ownership of the entity.
What is a stock sale?
A stock sale means that you are selling the equity or shares of your entire company.
This means the buyer would gain ownership of the legal entity and would be taking on any liabilities associated with the business.
As the business owner, you would be effectively selling your entire business, including its assets and liabilities.
Note: a stock sale as it’s known in most localities is often referred to as a share sale in the UK. The asset sale vs stock sale comparisons work just the same for asset sale vs share sale comparison.
What are the benefits of asset sales?
There are several key benefits to asset sales, which include:
Less paperwork and a shorter transaction time
Asset sales tend to be less complex than a stock purchase agreement, meaning there is less paperwork and due diligence involved. This can lead to a quicker transaction time.
You can retain ownership of your company
As the asset sale is between the company and the buyer, the seller typically retains ownership of the legal entity allowing them to continue trading in some form beyond the sale.
You can sell selected assets
With an asset sale, you have the option to only sell certain assets associated with your business. For example, if you own an Amazon business, you could sell one brand but keep others.
Fewer regulatory hurdles
Asset sales generally face fewer regulatory hurdles than stock sales making the transaction smoother.
In some cases, the tax consequences of asset sales can be more efficient in relation to future liabilities, but this is something that you should certainly discuss with a qualified tax advisor.
The benefits to a buyer are related to those of a seller in that the fact that the seller retains ownership of the legal entity there are no unforeseen liabilities for the buyer to take responsibility of.
An asset sale also gives the buyer the ability to pick and choose which assets they do and don’t want to purchase in the transaction and negotiate a purchase price on that basis.
What are the benefits of stock sales?
Stock sales are a popular option when selling a business for a number of reasons.
Easier to agree terms
As a rule, sellers prefer stock sales as it is a much easier, cleaner experience for them.
The concept of a stock deal is simple: everything is being sold.
An asset purchase adds a level of complexity to agreeing on terms because each and every asset needs to be discussed, agreed upon, and transferred.
When it comes to eCommerce, this can include considerations such as:
- Are you transferring the Amazon account, or just the listings?
- Are your suppliers happy to continue existing agreements?
- Will freelancers and agencies maintain existing agreements?
With a stock sale, these (and potentially hundreds of other questions) do not apply as the entity sold is the entire company.
Less complexity following the transition
The main benefit of stock sales is that the buyer gains full ownership of the company, including all assets and liabilities.
This can be seen as an advantage as it provides the buyer with more control over the business going forward.
The buyer takes complete ownership of the company along with contracts, suppliers and agreements.
In theory, this should result in a smoother transition and reduce the risk of temporary issues that can negatively affect a company’s cash flow.
Maintain brand presence
If the legal entity is synonymous with the brand, it may well be advantageous if a buyer purchases the entire company to ensure brand recognition is maintained.
Asset sale vs stock sale: Which option is best for you?
Both stock sales and asset sales have their own unique range of advantages and disadvantages.
It’s important when buying or selling a business to weigh up the pros and cons of each method so you can strive for the best possible outcome.
As a general rule, sellers will favor stock sales as they are much simpler for them and they can move on to new projects without anything carrying over.
On the other hand, buyers prefer asset sales for the most part because of the ability to choose individual assets to include and fewer potential liabilities.
If you are looking to sell your eCommerce business, we highly recommend speaking to experienced experts such as our trusted partners at EcomBrokers who will provide you with a free initial consultation service to ensure you structure your purchase or sale in the best way possible.