Is it better to buy a company or only its key assets?

Purchase of a company

To purchase a company you need to buy its shares or stocks. In this situation, the shareholders change, but the company itself retains all the assets and liabilities it had before. This method of transaction is usually used when the company is valuable to the buyer as an economic whole. It is also the only way to 'take over' certain licences, permits, tax interpretations or contracts concluded with public entities.

However, when purchasing shares in a company, there is a risk that in addition to valuable assets or rights, there are also liabilities about which the seller of the shares has not informed us (this applies in particular to contingent liabilities, e.g. sureties or bills of exchange). It may also turn out that past actions of the company will result (e.g. several years after the transaction has been finalized) in significant tax arrears or claims from other entities. The basic means of preventing such a risk is a thorough legal and tax due diligence of the company and structuring the share purchase agreement in such a way as to shift the responsibility for the financial consequences of actions or events that have been hidden from the buyer onto the seller.

For the purchaser, the main disadvantage of buying a company is the inability to simply include the expenses incurred on its acquisition as tax costs. The price of the shares cannot be depreciated. It can only be taken into account in the event of a subsequent sale of the shares.

Acquisition of an asset

If the value of a company is determined by a specific asset that can be transferred to another entity, e.g. real estate, a trademark, a technology line, then usually the acquisition of such an asset will be better than the purchase of the entire company. Firstly, such a transaction will be less risky than acquiring the company because it will be much easier to determine the state of liabilities related to a specific asset. Secondly, the purchase expense can be depreciated by the buyer, i.e. gradually included in tax expense.

Summary

It is worth remembering that both types of transactions mentioned above can be planned in such a way as to minimise the tax burden related to them.