Buying or Selling a Business in Michigan
For many years my law firm has represented both buyers and sellers of small to medium sized privately held businesses in Michigan. Although “hybrid” options are available, in general, there are normally two options in a structured sale of a business. Business sale transactions consist of either an asset or stock/membership sale.
Asset Sale: In an Asset Sale, specified assets (some or all) are transferred from the entity to the purchaser while the corporation and/or limited liability company entity that sold the assets remains in place and continues to be owned by its owners. Often times, although agreements can be modified accordingly, although assets are sold to a buyer, the entity who sold the assets still retains the liabilities. In most cases, depending on the facts, buyers generally prefer the asset purchase method since they will not be taking on past liabilities and the buyer can normally use the purchase price of the assets as the assets basis for tax purposes.
Stock Sale: In a Stock Sale, the buyer purchases the equity (stock or membership) interests from the owner(s) of the entity to be sold. There is no change in the status of the entity itself and the new equity owners take on, unless otherwise agreed to, all of the entity’s liabilities and contracts and the assets remain with the entity. Government authorizations, permits and licenses may not be transferable, and, therefore, in some industries because of the restrictions, a stock sale may be the preferred method amongst the parties. In most cases, depending on the facts, sellers generally prefer the stock purchase method as, unless otherwise agreed to by the parties, the seller will no longer be liable for the entity’s liabilities.
This article is a mere synopsis on the types of transactions that are normally done in a privately held sale of a business in Michigan. Generally, facts will dictate the type of sale that should be contemplated. This is just one area of discussion when contemplating a sale of business transactions and many other facets are involved in such a transaction. It is important to seek legal and accounting professionals when contemplating a business sale or purchase. Seth T. Seidell, Attorney at Law, concentrates his legal practice in the area of business law.