STOCK PURCHASE AGREEMENT
A stock purchase agreement is an agreement involving and finalizing all the terms and conditions related to the purchase and sale of the shares of a company. Through a stock purchase agreement, the buyer acquires not only the stock of the entire business, but also the seller’s legal entity and the company’s assets and liabilities.
Sale through a stock purchase agreement also includes within it the sale and transfer of the seller’s physical assets, without the need of numerous separate conveyances of each individual asset because title of each asset lies within the corporation. In addition, proceeds of a stock sale are taxed at a lower capital gains rate, and in C-corporations, the corporate level taxes are bypassed allowing the seller to avoid “double-taxation.” Therefore, sellers tend to favor stock sales, as they allow the seller to enjoy the lower tax rates and to possibly bypass responsibility for future liabilities by selling them off.
While buyers may accept more risk by purchasing the company’s stock, including all contingent risks that may be unknown or undisclosed at the time of sale, including future lawsuits and employee issues, a stock sale may be favorable depending on the type of business that the buyer is seeking to acquire. For example, if the business has a large number of copyrights or patents, or if it has significant government or corporate contracts that are difficult to assign, a stock sale is the better option because the corporation, not the owner, retains ownership. Accordingly, the buyer can more easily obtain the valuable assets of a company through a stock sale without risk of losing such important or valuable contracts.
By definition, however, typically a sole proprietorship, partnership, or limited liability company cannot conduct a stock sale. However, the owners can sell their partnership or membership interests, possibly effectuating the same type of sale.
For more information on stock purchase agreements, please contact Antonoplos & Associates at 202-803-5676.