If you're buying or selling a business, the deal will almost always be structured either as an acquisition, through an asset purchase or a stock purchase, or as a merger.
The two basic ways to acquire a business are through the acquisition of stocks or assets. In a stock transaction, the purchasing company acquires the business through the acquisition of the business's stock and the acquired company's debts and obligations remain. A similar concept occurs in an asset sale, but the acquiring company does not take responsibility for the debts of the acquired business. Rather, the acquired company uses the proceeds of the sale to settle all obligations of the business, and is responsible for any future debts that may arise.
In Illinois, a merger refers to a specific statutory procedure by which one entity absorbs one or more other entities, takes over all property, rights, and franchises of the other entities, and becomes liable for all of their liabilities and obligations.
It is important that an attorney understand the client's purposes in purchasing or selling a business enterprise in order to advise the client adequately with respect to the best form for the transaction. We understand that by knowing the client's purposes, we can give particular attention to those matters that are critical to accomplishing the client's objectives. We work with you and your accountant to assist our clients in establishing the framework for the transaction that will best serve you in achieving your goals.
Asset Purchase: In concept, the easiest way to buy a business is to purchase a seller's assets, free and clear of any liabilities. The purchaser is not actually buying the business entity itself. Thus, an asset purchase is much like buying the seller's merchandise without buying the store.
Stock Purchase. A stock purchase may require only that the selling shareholders swap their stock certificates for a check from the buyer. In contrast to an asset purchase, the buyer is actually taking over the seller's store and not just purchasing the merchandise.
Merger: A merger refers to a specific statutory procedure by which one entity absorbs one or more other entities, takes over all property, rights, and franchises of the other entities, and becomes liable for all of their liabilities and obligations.
"Due diligence" is the process in which the purchaser investigates all aspects of the business that is to be acquired. The purpose of due diligence is to determine whether the business is accurately represented by the seller, and to ensure, to the extent possible, that there will be no adverse surprises after the sale is closed. The extent of due diligence varies according to the nature of the business and is usually undertaken by professionals, such as attorneys and accountants. We can assist you in performing the necessary due diligence in the purchase of your business.
The due diligence and contract negotiation process can be extremely expensive. Thus, where the asking price of a business is relatively small, the purchaser may not wish to spend money on legal and accounting fees in an amount equal to, or greater than, the purchase price of the business. Lowering the cost of the transaction by reducing the amount of due diligence usually means that the purchaser assumes a greater degree of risk.
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