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Sheridan County School District #2 > What Is An Equity Purchase Agreement

What Is An Equity Purchase Agreement

The terms of sale then specify how the buyer will pay the seller. The purchase price can be paid in full in cash, but it is more likely to be paid with a combination of cash (at closing) and seller financing. In this case, the buyer gives the seller a promissy note for part of the purchase price. In the context of a merger or acquisition transaction, asset purchase agreements have a number of advantages and disadvantages compared to the use of a share purchase agreement (or a share purchase agreement) or a merger agreement. In the event of a capital acquisition or merger, the buyer receives all the assets of the target company without exception, but also automatically assumes all the liabilities of the target company. Alternatively, an asset purchase agreement not only allows for a transaction in which only a portion of the assets are transferred (which is sometimes desired), but also allows the parties to negotiate which liabilities of the target are explicitly assumed by the buyer and allows the buyer to leave behind liabilities that they do not want to accept (or know nothing about). One of the disadvantages of an asset purchase agreement is that it can often lead to a greater number of change of control problems. For example, contracts held by a target company and acquired by a buyer often require the approval of a counterparty as part of an asset transaction, whereas it is less common for such approval to be required as part of a share sale or merger agreement. Earn-outs are a form of conditional consideration that delays the full determination of the purchase price until after closing after certain milestones have been reached. A common earn-out milestone is the goal of achieving certain EBITDA targets for specific periods after closing. Earn-outs are often used when the parties cannot agree on the price or when the buyer cannot obtain enough financing from a third party to finance the purchase. The purchase price can also be adjusted based on the target`s working capital on the reporting date, which is typically calculated between one and three months after closing. It is important to ensure that the terms of sale of the purchase and sale agreement adequately describe how the purchase price adjustment is calculated and how disputes are handled.

In addition, in a share sale, a buyer does not have the advantage of recording the acquired assets at their fair value for tax purposes, which could result in the loss of a portion of the tax depreciation available to protect future income. Given this fact, buyers are sometimes drawn to a sale of assets rather than a sale of shares, as there are fewer concerns about undisclosed liabilities and better tax treatment. On the other hand, from an after-tax perspective, a seller may be better off making a share sale. A smart seller should always ask a potential buyer to make an offer for both an asset sale and a stock sale, and choose the one that offers the highest after-tax cash product. In a stock transaction, the legal existence of the target will continue – only its ownership will change. In an asset transaction, a new company buys the assets needed to operate the business. This means that the buyer must also hire the target`s employees that he deems necessary for the continuation of operations. Often, all existing employees are hired as new employees of the buyer. .