Sale of Business Assets: Selling Business Assets

Business assets are assets that are owned and controlled by a business entity, rather than owned by a private individual. A business may acquire its various assets through the course of business operations. Assets may help the business to achieve its business goals, and the accumulation of assets may lead to significant growth for the business.

Some examples of business assets include:

• Monetary funds, such as profits, start-up capital, investment accounts, donations, and other sources;
• Real and personal property; and
• Non-tangible goods, such as patents, licenses, stocks, copyrights, etc.

A business sale of assets refers to a sale in which a business entity sells some or all of their assets. This may include the sale of tangible items, such as merchandise or property. More commonly, a sale of assets involves the sale of non-physical goods.

A business organization may choose to sell only some of their assets in a separate sale, instead of selling all of the assets together. However, most sales of assets occur as a part of the business merger and acquisition process. An example of this would be how one business may purchase another business in an acquisition. The acquisition process implies that all of the assets of the business being sold are being transferred in whole to the purchasing company.

Sales of business assets are generally treated differently than the sale of consumer goods. In a sale of assets, the buyer typically must be fully informed in regards to the nature and quality of the types of assets being transferred. 

What Types of Business Assets Can Be Sold? What Is the Difference Between Asset Sale vs. Stock Sale?

Generally speaking, any type of asset that is held by a business can be sold, so long as the sale itself is legal. Depending on the type of business form, the consent of the owners and/or shareholders of the business selling the assets may also be required for a sale of business assets. 

The following are most commonly the subject of a sale of assets:

• Real property, such as the building in which the business is located;
• Other kinds of physical property, such as equipment, fixtures, furniture, and machinery;
• Non-physical items, including business names, patents, copyrights, trademarks, permits, insurance policies, contracts, and future interests; and
• Stocks, trust funds, and other types of securities.

An asset sale refers to the purchase of individual assets and liabilities. Alternatively, a stock sale refers to the purchase of the owner’s shares of a corporation. If the business being sold is a sole proprietorship, a partnership, or an LLC, the sale cannot be structured as a stock sale. This is due to the fact that none of these entity structures actually have stock.

Rather, owners of the aforementioned entity structures can sell their partnership or membership interests. This is in opposition to the entity selling its assets. If the business is incorporated, the buyer and seller will need to determine whether they should structure the deal as an asset sale, or a stock sale.

What Are the Advantages of Selling Assets?

There are several potential advantages and benefits of selling business assets. Examples of such advantages may include:

• No legal liability for the corporation prior to the purchase;
• No liabilities for employees, as all of the seller’s employees are terminated at the close of the escrow process;
• Costs paid for the assets are considered to be depreciable; and
• Clean credit, reputation, and workers compensation rating.

However, it is important to remember that there are several disadvantages to selling business assets as well. These may include:

• No established credit;
• The need to rehire employees;
• The need to negotiate for the transfer of leases and contracts;
• New licenses; and
• There will be required sales tax to be paid on furniture, fixtures, and equipment.

In addition to the above business assets, there are some assets that cannot be sold, or are harder to sell, such as trade secrets or company goodwill. Company goodwill is only recorded when one company acquires another company and pays more than the purchased company is worth. Some common reasons for goodwill include name or brand recognition. 

Thus, a company cannot freely sell its goodwill; instead the company’s goodwill may only be sold if the company is acquired by another company entirely. Similarly, a company cannot freely sell its trade secrets, outside of confidential licensing agreements, as doing so would cause the company to lose its trade secrets.  

Are There Any Special Considerations for a Sale of Assets?

Before deciding to buy or sell a business, there are some special considerations to keep in mind for a sale of assets. The sale of even a few assets can be extraordinarily complex. This is especially true if the assets have a high market value. Whenever a sale of assets is to take place, the businesses involved will typically create a sale of business assets agreement.  

This type of agreement is a business contract, which generally states:

• How the sale is to be organized and conducted;
• Which assets will and will not be transferred to the buyer from the seller;
• How the buyer will fund the payments;
• Details regarding shareholder approval, if necessary; and
• Provisions regarding the debts and liabilities of the selling company.

If the sale of assets is occurring through an acquisition, the agreement is usually referred to as a broad transfer agreement or provision. This type of agreement states that the company being acquired is transferring all of their assets in full to the buying company. Some other considerations that the involved parties should keep in mind during a sale of assets include:

• Tax and gift tax laws;
• Shareholder laws; and
• Rules regarding non-sale clauses.

Sales agreements and sales contracts for the sale of a company should include as many details as possible, as well as describe the sale of the company. When drafting a sales agreement, these legal terms should be included: 

• A detailed description of the goods and services being sold alongside the corporation;
• The total payment due, along with the payment’s due date and manner of payment;
• A clause stating that both parties must agree to and approve of any changes to the agreement in writing;
• How long the buyer has to inspect the building the company resides in;
• The state whose laws will govern the agreement;
• Financial arrangements, such as how the buyer intends to pay for the company;
• Description of the real property, if any, and the personal property to be transferred in the sale;
• The minutes of the corporation organization authorizing the sale, if the business keeps minutes; and
• All warranties of the seller.

Do I Need a Lawyer for a Sale of Assets?

No matter if you are buying or selling business assets, you should consult with a skilled and knowledgeable business lawyer local to you. An experienced and local business attorney will have the most up to date knowledge of local laws that could affect your legal dealings. Additionally, an attorney can also help draft a sound and fair business sales agreement.

As can be seen, business assets can often be a common source of legal disputes. Some common legal disputes over business assets include profits, classification of assets, management of assets, use of assets, and transfer of assets. An experienced business lawyer can assist in settling such disputes, and can also represent you in court as needed.