Whether you’re the buyer or the seller, the transfer of ownership business agreement you select will significantly affect your legal rights and responsibilities.
Although there are variations, the two primary types of business ownership transfer agreements are:
(1) Asset Purchase Agreement; and
(2) Equity Purchase Agreement
1. Asset Purchase Agreement
With an asset purchase agreement, the buyer (either an individual or a business entity) purchases some or all of the seller’s assets but does not acquire equity in the seller’s company.
A major advantage to the purchaser in an asset purchase is that the buyer is generally shielded from liability for what happened in the business when the selling entity owned the assets.
Related Resource: Sale Of A Business
For the seller, the primary advantage of an asset purchase is that it’s easier to retain ownership of some assets rather than sell them as part of the deal. This may be particularly important to a seller who wants to keep ownership of a building, vehicles, or equipment used by the seller to run other businesses that are not for sale.
2. Equity Purchase Agreement.
Instead of an asset purchase, one can buy corporate stock, LLC membership interests, or other entity equity from a seller.
In this scenario, the assets to do not transfer ownership, just the equity.
The business retains the same liability exposures that it had prior to the transfer of equity from seller to buyer and continues as a going concern.
However, an equity purchase is typically both quicker and simpler to accomplish than an asset purchase.
In addition, the deal can be a partial equity purchase. For example, the purchaser might buy 75% of the seller’s equity in the business while the seller remains an investor (active or passive) with a 25% equity stake in the company.
Where To Get A Transfer Of Ownership Business Agreement
An experienced business contracts lawyer (e.g. Attorney Mike Young) will be able to both advise you on the best type of transfer of business ownership agreement to use (asset or equity) plus prepare the contract and related legal documents for completing the deal.