Asset Purchase

A business acquisition structured as the purchase of specific named assets and goodwill, rather than the legal entity itself, generally leaving known and unknown liabilities of the old entity behind with limited exceptions.

Example

A buyer structures the deal as an asset purchase specifically to avoid inheriting a pending wage-claim dispute tied to the old corporate entity.

Important

Buyers generally prefer this structure for the liability shield and for a stepped-up tax basis on the assets acquired; sellers often prefer the alternative.

Related terms

• Stock (Entity) Purchase — A business acquisition structured as the purchase of ownership in the legal entity itself, transferring the entity's full history of contracts, obligations and liabilities, known and unknown, to the buyer.
• Goodwill — The residual value of a business purchase left over once tangible assets are valued and liabilities assumed are subtracted, representing customer relationships, reputation and other intangible value expected to transfer to the new owner.
• Due diligence — The work of independently verifying the claims made about an investment before committing money to it - the documents, the counterparties, the registrations and the numbers.

Lessons that explain it

• Buying a small business almost always means buying a job — A small-business purchase is rarely a passive claim on cash flow. Most of what you are paying for is bound up with the seller's own labour, and the legal structure of the deal decides which liabilities move with it. (9 min)
• Franchise royalties and goodwill amortisation both compound quietly over the holding period — Beyond key-person and concentration risk, a small-business purchase carries recurring costs and tax treatment that materially change the price a buyer can justify and the return a seller actually keeps - none of which shows up in a headline SDE multiple. This lesson is general information, not personal tax or legal advice, and rules vary by jurisdiction. (12 min)

All 578 terms in the Investing glossary