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ABA Family Legal Guide
Forming and Operating a Small Business
Franchising and Buying a Business
Buying a Business
I'm thinking about buying a business. Should I buy the whole business, or is it a better bet to buy only the assets?
To the layperson, this seems like a no-brainer. When you buy a business, you buy it lock, stock, and barrel. But often it's best to buy just part of the business--the part with the most potential benefit and least potential risk.
Let's look at your choices. When you buy from a corporation, you could either buy a controlling interest through buying enough of its stock, or you could buy the assets of the corporation but leave the corporate shell behind, kind of like a crab in molting season.
What assets are we talking about? That varies with the business, of course, but it could be
One advantage of just getting the assets is that you have less chance of picking up the corporation's existing or future liabilities, including
Another advantage of buying the assets only is that you may well get significant tax breaks, including the opportunity to depreciate anew some assets that already may have been depreciated by the corporation. This enables you essentially to show a "paper" cost--and thus show fewer earnings and possibly pay less in taxes. You'll also start off with a higher tax basis for the assets--and thus pay less in capital gains when you eventually sell them.
On the other hand, if the corporation benefited strongly from existing contracts, you might want to buy the corporation as such and continue the contracts.
Because of considerations such as these, most small business sales are of assets rather than the entire business.
Copyright © 2004 American Bar Association