When you’re considering an online business acquisition one of the key issues to decide is whether to buy its assets or the equity of the entity (e.g. corporate shares) that owns it.
It’s been my experience that 90%+ of the time an asset purchase makes more sense than buying equity.
Why?
With an asset purchase you can limit liability exposure better for the seller’s acts and omissions prior to closing on the deal. For example, you can reduce the risk you’re getting hit with a lawsuit or back taxes owed from pre-closing activities while the seller ran the business.
However, there are important exceptions to the general rule that an asset purchase is the better way to proceed.
For instance, there may be nonassignable contracts in place with the seller’s entity (e.g., ad network agreements) that are essential to running the venture profitably.
Another common reason for an equity purchase is where the primary source of revenue from the online business is marketing to its email lists. Where there’s an inability to sell those lists as assets because of spam and privacy laws, an equity purchase may be the only legal option available.
If you haven’t bought an ecommerce venture before, you might want to pick up a copy of my course “How To Buy A Successful Online Business.“
And if you need legal help with buying an online business (e.g., purchase agreement and related documents), let’s talk by phone.
