Business Sales & Acquisitions

Asset Purchase vs. Stock Purchase

Asset Purchase Agreement

In an asset purchase, the buyer acquires selected assets of the business—such as equipment, inventory, contracts, intellectual property, and goodwill—while generally limiting assumption of liabilities. This structure is often preferred by buyers because it allows:

• Greater control over which liabilities are assumed

• Avoidance of unknown or contingent obligations

• Step-up in asset basis for tax purposes

• Selective assignment of contracts

However, asset purchases may require third-party consents for contract assignments and can trigger transfer taxes, licensing complications, or bulk sale considerations depending on jurisdiction.

Stock or Membership Interest Purchase Agreement

In a stock (corporation) or membership interest (LLC) purchase, the buyer acquires ownership interests and steps into the company as an ongoing entity. This structure:

• Preserves existing contracts without assignment (in many cases)

• Maintains operational continuity

• Avoids retitling certain assets

• May simplify certain regulatory or licensing transitions

However, the buyer also inherits the company’s existing liabilities—known and unknown—making representations, warranties, and indemnification protections critically important. The choice of structure impacts tax treatment, successor liability exposure, employee retention, and post-closing integration.

Letters of Intent (LOI) & Deal Framework

Many transactions begin with a Letter of Intent or term sheet. While often partially non-binding, the LOI sets the psychological and structural framework for the deal. Important LOI components typically include:

• Purchase price and allocation methodology

• Earn-out or performance-based adjustments

• Deposit or exclusivity provisions

• Scope of assets or equity to be acquired

• Non-compete and transition expectations

• Confidentiality and no-shop clauses

Poorly drafted LOIs create leverage imbalances that carry through to definitive agreements. Early legal review prevents unintended commitments and preserves negotiation flexibility.

Due Diligence & Risk Allocation

Due diligence is the process of verifying what is being purchased—and identifying what may not be visible at first glance. For buyers, this typically includes review of:

• Organizational documents and ownership records

• Existing contracts and change-of-control provisions

• Pending litigation or regulatory investigations

• Employment agreements and restrictive covenants

• Intellectual property ownership and assignment history

• Financial statements and tax filings

For sellers, proactive diligence preparation strengthens negotiation posture and reduces post-closing disputes. Risk allocation is primarily addressed through:

• Representations and warranties

• Disclosure schedules

• Indemnification provisions

• Survival periods

• Liability caps and baskets

These mechanisms define who bears responsibility if something proves inaccurate after closing.

Purchase Agreements & Key Closing Documents

The definitive purchase agreement is the core transaction document. Whether structured as an Asset Purchase Agreement or a Stock/Membership Interest Purchase Agreement, it governs price, representations and warranties, covenants, conditions to closing, indemnification, and post-closing rights. It allocates risk between the parties and defines what happens if assumptions about the business prove incorrect after closing.

However, the purchase agreement alone does not complete the transaction. A properly structured closing typically requires multiple ancillary documents, each serving a distinct legal function.

Bill of Sale

In an asset transaction, the Bill of Sale formally transfers ownership of tangible personal property—such as equipment, furniture, inventory, and other physical assets. While the purchase agreement outlines the transaction terms, the Bill of Sale is the instrument that legally conveys title to those assets. Without it, ownership transfer may be ambiguous.

Assignment and Assumption Agreement

Contracts, leases, and intellectual property rights cannot always be transferred automatically. The Assignment and Assumption Agreement transfers contractual rights and clarifies which liabilities the buyer is assuming. This document is particularly important where third-party consents are required or where the buyer intends to limit assumption of pre-closing obligations.

Stock or Membership Interest Transfer Documents

In equity transactions, ownership is transferred through stock powers, membership interest assignments, or amended capitalization records. These documents formally convey equity interests and update the company’s ownership ledger. Precision is critical to prevent future ownership disputes.

Promissory Note

Where seller financing is involved, a Promissory Note sets the repayment schedule, interest rate, maturity date, default remedies, and acceleration rights. The note converts part of the purchase price into a legally enforceable debt obligation. Without clear drafting, repayment disputes can undermine the transaction long after closing.

Security Agreement

If the seller finances a portion of the purchase price, the seller may require collateral. A Security Agreement grants a security interest in specified assets, and UCC financing statements perfect that interest publicly. This protects the seller in the event of buyer default or insolvency.

Non-Competition & Non-Solicitation Agreement

The value of a business often lies in customer relationships, goodwill, and operational knowledge. Restrictive covenant agreements prevent the seller from competing directly, soliciting clients, or recruiting employees after closing. These agreements must be carefully drafted to comply with applicable state law and remain enforceable.

Escrow Agreement

In transactions involving indemnification holdbacks or purchase price adjustments, a portion of funds may be held in escrow for a defined period. The Escrow Agreement governs release conditions, claim procedures, and dispute resolution mechanisms. This structure protects buyers while providing clarity to sellers.

Corporate Resolutions & Closing Certificates

Corporate resolutions authorize the transaction and confirm that the individuals signing documents have proper authority. Closing certificates confirm that representations remain accurate as of closing and that required conditions have been satisfied. These formalities protect against later challenges to enforceability.

Planning to Buy or Sell a Business?

Business transactions require careful structuring, disciplined due diligence, and precise documentation. Whether you are acquiring assets, selling equity, or negotiating a letter of intent, early legal guidance protects value and reduces post-closing risk.

Provide a brief overview of the transaction—including structure, industry, and anticipated timeline—and we will follow up promptly.