Deal Structures and Terms
A deal structure is the legal form a purchase takes: what the buyer actually acquires and from whom. Two of the most common forms are the stock purchase and the asset purchase, and each comes with payment and ownership terms that shape tax, liability, and whether the seller is willing to sign.
Stock purchases: buying the company's ownership. In a stock purchase, the buyer acquires shares from the company's owners. The company itself stays in place as the same legal entity, so its contracts, obligations, and history stay with it, and the buyer takes control of all of it. The payment goes to the shareholders, not to the company. This makes the transaction simple to carry out, because little has to be moved or re-papered. It also means the buyer inherits everything the company has done, including liabilities that are not yet visible.
Asset purchases: buying selected pieces of the business. In an asset purchase, the buyer acquires specific assets of the business, such as equipment, inventory, intellectual property, or customer relationships, and agrees to take on only the liabilities it names. The seller's company remains with the seller, along with whatever the buyer did not take. This gives the buyer more control over what it is getting. The trade-off is more work: each asset must be identified and transferred, and some contracts may need the other party's consent before they can pass to the buyer.
Payment and ownership terms. Beyond the structure, a deal sets how the price is paid and what the buyer ends up owning. Payment terms cover the form of consideration (cash, shares in the buyer, or a mix), and whether any of the price is deferred, held back, or tied to future performance. Ownership terms cover how much of the business the buyer acquires and what rights come with it. Each term moves risk and value between buyer and seller, so the terms and the structure are negotiated together.
How structure affects tax, liability, and the seller's willingness to sign. Structure changes three things.
- Tax. The two forms are usually taxed differently for buyer and seller. For example, buyers often value being able to treat what they paid as the cost of specific assets, while sellers care about how their proceeds are taxed. The rules differ by country and situation, so check the rules where the deal takes place.
- Liability. A stock purchase carries the company's past obligations to the buyer. An asset purchase lets the buyer leave named liabilities behind.
- The seller's willingness to sign. A structure that costs the seller more tax or leaves it holding unwanted obligations may be refused or priced higher. A deal only closes when the structure works well enough for both sides.
