Business attorney Clem Abrams returns this week with Mergers & Acquisitions (M&A) part 3 of 4. This week, Clem discusses the Sale of Stock or Equity. As a business lawyer with over 20 years’ experience, Mr. Abrams regularly advises Davis Law clients on transaction matters, including complex M&A, asset and stock purchases, restructuring, and corporate compliance issues.
Hello! Clem Abrams again from Davis Law, PLC. Today in our M&A series our topic is the sell of stock or equity. Now the general rule in a stock or equity sell is that the buyer purchases the stock or equity of the target company which essentially causes the buyer to step into the shoes of the prior holder. Since equity forms such as sole proprietorships, partnerships, or limited liability companies do not carry stock a stock method of purchase is geared towards an S corp or C Corp. Conversely, in the LLC the purchaser is acquiring equity or membership interests. Now, a few advantages of the stock or equity purchases is that there is generally a complete transfer of the company. This means that the company continues to exist as it did prior to the purchase. This is generally an inexpensive and quickly executed deal. You may want to know what are some of the disadvantages. Well, here they are for you: generally, the buyer takes on all of the sellers debts and obligations whether they are known or unknown at time of the sale. It should be noted that the unknown nature of liabilities can be managed with proper bring down reps, warranties, and indemnification. Another is that in the case of a corporation there are complexities in complying of state and federal security laws and regulations. So, this was a quick breakdown of a stock or equity sale. It would be impossible for us to carry the full scope of this deal in one discussion so, feel free to drop your question in the comments and make sure you tune in next week as we discuss the different types of traditional mergers.