Sellers often prefer share sales because all revenues are taxed with a lower rate of capital income and corporate tax is bypassed in C companies. Similarly, sellers are sometimes less responsible for future debts, such as product liability rights, contractual rights, employee lawsuits, pensions and benefit plans. However, the sales contract in a transaction can refer the responsibilities to a seller. But in asset purchases, the buyer does not receive preferential tax treatment, as the acquisition of assets cannot be considered a tax-exempt reorganization. A share or equity transaction involves the sale of the interests in a target company by shareholders to an acquirer. In the case of a share purchase transaction, instead of acquiring certain assets and liabilities, the acquirer acquires a stake in the entire business. The buyer acquires the business rather than acquiring the business from the company. By buying assets rather than shares, the buyer avoids the problems of minority shareholders who refuse to sell their shares. When NetApp bought Engenio from LSI, it was structured as an asset sale. The press release gives you an indication of the purchase price not per share, but as a total amount: share purchases include the full acquisition of the shares of the target company, with the purchaser going directly to the shareholders to complete the agreement. At the end of the year, the entity concerned may continue to exist as a stand-alone corporation, even if it often becomes the subsidiary of the beneficiary company. However, the new parent company may be vulnerable to existing or even unforeseen debts of the target company when purchasing shares.
The appropriate transaction structure for your transaction varies considerably depending on your specific circumstances. Each structure offers obvious pros and cons, including those not addressed in this succinct article. For example, if you are mentioned here only by the way, tax considerations can play an important role – or even the most important role – in determining which structure will maximize the value of a deal. If you view these structures thoughtfully, you can facilitate the smooth sale and increase the value your shareholders receive from the company (including, in some cases, by giving your buyer the benefit of a preferred structure in exchange for greater consideration to your shareholders). For a buyer, the greatest advantage of buying shares is simplicity. This type of transaction is quite simple compared to their counterparties in the acquisition of assets, because the buyer simply enters and buys the entire business, its assets and its liabilities. This means that nothing needs to be renamed. It also means that the seller must not rewrite the contracts and get the agreement of his customers; existing contracts are simply accompanied by the sale. A sale of assets is the acquisition of individual assets and liabilities, while a sale of shares is the acquisition of the shares of a company.
While there is much thought in negotiating the nature of the transaction, tax consequences and potential commitments are the main concerns. Several advantages of buying shares are shown below: asset purchases and share purchases include trade-offs between buyers and sellers, both for accounting purposes and in the areas of financial and legal liability. Impact knowledge can help you better understand the decisions made by acquisition and destination companies in a buyback transaction.