stock purchase vs asset purchase insurance

Search, Browse Law Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law). An essential part of defining and impacting the scope of the seller's responsibilities and warranties, the disclosure schedule offers factual disclosures pertaining to the purchase agreement. liabilities 447 7.5ecognition and derecognition R 454 7.6 Measurement and gains and losses 462 7.7 Hedge accounting 476 7.8 resentation and disclosure P 491. In contrast to a stock purchase, the buyer in an asset transaction . P acquires all of the stock of T, an insurance company, in a . Visit our professional site », Created by FindLaw's team of legal writers and editors Save for it without taking the risks of long-term care insurance. Also, keep in mind that just because the buyer requests the seller provide a certain type of insurance or indemnification does not mean that the seller will agree to it. However, see Trade or Business . What if there is a fire, auto accident or embezzlement discovered just days or weeks before the closing date of the sale? It remains a stock purchase for all other legal purposes, such as contracts and licensing (more on that later). A wide-ranging source of information for the practicing accountant, The Ultimate Accountants' Reference, Third Edition covers accounting regulations for all aspects of financial statements, accounting management reports, and management of ... Assets to be Excluded. 104. Purchase Accounting for a Merger or Acquisition. In this FAQ, Crane Agency will  examine the differences between a Stock Acquisition and an Asset-Only Purchase. An asset purchase is the act of a buyer purchasing all or a portion of a business's assets. P provides these employees with coverage under a group health plan. This applies even if the prior liabilities are unknown at the time of the sale. The General Rule Regarding Asset Purchases and Seller Liabilities. Therefore, in most instances, it's just basically an easier, less complex transaction. A stock purchase also means there is no reason to reapply, renegotiate, or transfer things like employment agreements, permits, facility leases, and utilities. A fire breaks out in a home and, months later, investigators determine the fire was caused by the faulty toaster purchased from the business that now belongs to you. This is not required in a stock transaction. Depending on the asset, the seller may be liable to pay ordinary income tax or capital gains depending on the assets sold. Key-Man Insurance Section 4.10. Mergers and acquisitions (M&A) occur when businesses combine to achieve corporate objectives. What other issues should be considered? Also let your insurance broker see at least the indemnification and insurance sections of the buy/sell agreement. Preferred stock is a special type of stock that pays a set schedule of dividends and does not come with voting rights. Purchase price allocations for tax purposes are required when an acquisition is structured as an asset transaction or a stock transaction with an IRC §338 election (or a deemed asset transaction). Firms, Asset Purchase vs. Stock Purchase: Advantages and Disadvantages. Purchased Assets Asset transactions are typically more complicated and more time consuming than stock purchases and statutory combinations. In case of the asset purchase, the buyer purchases the specific assets and the specific liabilities of the company which it wants and there is no transfer of the business ownership, whereas, in case of the stock purchases, it is compulsory for the buyer to take all the assets and the liabilities of the seller company and there is full transfer of the business ownership. A well drafted agreement anticipates the intent and needs of the owners, as well as the potential . In making the decision to purchase an existing business, it is necessary for the buyer to determine whether he or she is going to seek to purchase the assets of the business, or the stock of the business entity. The information provided does not reflect new circumstances, or additional regulatory and legal changes. Purchasing is also called a title transfer. S continues to employ a few employees for the principal purpose of winding up the affairs of S in preparation for liquidation. What insurance issues do I need to worry about? 131. Asset Purchase vs. Based on a study done by The National Alliance Research Academy for the book Maximizing Agency Val-ue II: A Guide for Buying, Selling, and Perpetuating Insurance Agencies, four out of five agency sales are done as asset purchases. The tax consequences and mechanics differ for each transaction. All rights reserved. Found inside – Page 3836 , above ) defendants ' attempt to view their three stock purchase and loan transactions as one , and to treat the matter as though the only consideration for the new ACB ... 64,000,000 to purchase assets from the receiver of ACB -38-39. What is the general difference between the two? The buying group is referred to as a “successor employer.”  The successor employer has the obligation to make COBRA available to all M&A qualified beneficiaries with respect to that asset sale.  This obligation arises as of the later of (a) the date that the selling group ceases to provide any group health plan to any employee, or (b) the date of the asset sale. Since the fire started before you bought the company, the claim would be paid for by the general liability policy that was in force the day the fire happened. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided. However, this doesn’t automatically make all problems go away. It's important to note in an APA transaction, it is not necessary for the buyer to purchase all of the assets of the company. Goodwill as Part of a Corporate Asset Sale. The excluded assets are customarily listed on a schedule as an attachment to the purchase agreement. §54.4980B-9, Q/A-8(d), Example 8: Example (8). (i) Selling Group S provides group health plan coverage to employees at each of its operating divisions. Assets and liabilities for which the turnover is quick and the maturities are three months or less (such as debt, loans receivable and the purchase and sale of highly liquid investments) Cash Flows from Operating Activities. purchase an important asset) • Lower risk of assuming unknown or undisclosed liabilities - but see Practice Tip below • Often better tax treatment than stock acquisitions • Seller • Left with known/unknown liabilities not assumed • Often better tax treatment when selling stock • More complicated - assigning specific assets Found inside – Page 35For purposes of this questionnaire , intangible assets at purchase shall be defined as the excess of the purchase price over the tangible net worth ( total assets less intangible assets and total liabilities ) represented by such shares ... Yes, permanent life insurance is an asset. Purchasing is also called a title transfer. Insurance agency acquisitions and deal values are near an all-time high and all expectations are that deal flow in 2019 will match . Among other consequences, the resulting accounting can have a direct impact on lender and/or investor agreements and their corresponding expectations at inception and in future reporting years. Purchase consideration attributed to replacement stock awards . Privacy Policy | License #0H55918. Unlike margin, these nonpurpose credit lines may not be used to purchase securities or pay . Goodwill can be amortized by the buyer for tax purposes over a period of fifteen years. Liability Insurance Section 4.11. A stock redemption or entity buy-sell agreement is a binding agreement that is implemented by the owner's of a business to facilitate the orderly transition of a business interest in the event of the death, disability or retirement of a business owner. Treas. – remain with the seller. A qualified stock purchase that is treated as a purchase of assets under section 338 is treated as a transaction involving the acquisition of assets constituting a trade or business only if the direct acquisition of the assets of the corporation would have been treated as the . Definition of Assets and Nonadmitted Assets. Part 2510 (Mar. Cash flows from operating activities result from providing services and producing and delivering goods. These Assets reveal information about the company's investing activities and can be tangible or intangible. Talk to a small business lawyer to help you further understand the differences and answer any important questions you may have. As you can see, there are several key advantages and disadvantages to asset and stock purchases. Stock Versus Asset Sale. Meeting with a lawyer can help you understand your options and how to best protect your rights. 7. Part 2510 (Mar. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. (D) stock purchase agreements, asset purchase agreements and other Company Contracts relating to the acquisition, lease or disposition by the Company or any of its Subsidiaries of assets and properties or any Equity Interest of the Company or any of its Subsidiaries for consideration in excess of $100,000,000.00 or under which the Company or . addressed in evaluating an asset purchase as an alternative to a stock purchase or a merger or a share exchange (statutory combination). Stock Options and Stock Purchase Plans. Found inside – Page 44The Continental transaction was structured as it was because a normal purchase and assumption transaction could not be ... means ( stock purchase , note purchase , restructuring , reorganization , refinancing , asset purchase , etc. ) ... Can I simply keep the seller’s current policies in place with no changes? An asset purchase means that you have purchased only the physical assets of the company, typically along with their customer list and goodwill. In fact, I would estimate that 90% or more of agency sale transactions are done as an asset purchase. A group health plan of the buying group has this obligation beginning on the later of the following two dates and continuing as long as the buying group continues to maintain a group health plan (but subject to the rules in §54.4980B-7, relating to the duration of COBRA continuation coverage)—, (i) The date the selling group ceases to provide any group health plan to any employee; or. They disappear. A. S sells substantially all of the assets of all of its divisions to Buying Group P. P hires most of S’s employees on the date of the purchase of S’s assets, retains those employees in the same positions that they had with S before the purchase, and continues the business operations of those divisions without substantial change or interruption. A stock purchase involves the purchase of the selling company's stock only. The sale of business assets by a C Corporation results in a gain to the corporation and, under current law, is taxed at graduated corporate rates up to 35%. Found inside – Page 503The Group also believes that P&C insurance industry has potential for growth. The acquisition was executed through an equity interest agreement to acquire 100% of the membership interest in DS LLC and asset purchase and employee ... Plaintiff attorneys can be quite the bulldogs when looking for a deep pocket. However, for both stock and asset purchase sales, a buyer still has a general interest in knowing that the property he is buying is fully insured prior to his purchase. Found inside – Page 13-1... Asset Purchases [B] Stock Purchases [C] Mergers § 13.04 Retirement Plan Service [A] Asset Purchase [B] Stock Acquisition [C] Mergers [D] Vesting Service § 13.05 Retirement Plan Coverage [A] Asset Acquisitions [B] Stock Acquisitions ... The responsibility for liabilities that were incurred prior to the purchase remain with the seller. If you don't like the asset after the purchase, you need to find a new buyer to sell off the asset. Insurance premium: You need to pay more insurance premium in the case of leasing. The results of those business negotiations may increase the buyer’s risk in certain areas and therefore the need for certain types of insurance. I’m going to buy someone else’s business. Matthew Odgers, JD, explains the fundamentals for asset- versus stock-structured purchases of dental practices. Most customers of failed brokerage firms are protected when assets are missing from customer accounts. Selling Group Obligated to Provide COBRA: If the selling group maintains any group health plan after the sale, then a group health plan maintained by the selling group will remain liable for providing COBRA to the M&A qualified beneficiaries with respect to the sale. Instead, the purchasing company is paying cash or giving its own stock to the seller for the title to what the other company owns. It is necessary for the selling company's assets to be re-titled in the name of the buyer. If such a lien exists, you could lose the very assets you thought you . These are the general default rules that apply in an asset sale where the seller terminates its group health plan.  As a general matter, the buyer and seller may contractually allocate the responsibility to make COBRA coverage available to M&A qualified beneficiaries in a different manner under the terms of the purchase and sale agreement. Nov. 7, 2016. Learn more about FindLaw’s newsletters, including our terms of use and privacy policy. However, before we get too far ahead of ourselves, it is important that we first define what an asset is and then see how life insurance fits into the category of an asset. This Q&A-8 prescribes rules for cases in which the selling group ceases to provide any group health plan to any employee in connection with the sale. The information provided is of a general nature and an educational resource. Found inside – Page 392[ 2 ] Purchase of Stock with a Section 338 Election Despite the general rule of a carryover basis for the assets of a company whose stock is purchased , a corporate acquiror may obtain a step - up in the basis of the target company's ... An asset purchase involves the purchase of the selling company's assets -- including facilities, vehicles, equipment, and stock or inventory. Asset purchase versus stock purchase in dental practice purchases. If the sale is an asset purchase, this will mean that the named insured will be changing. Neither a stock sale nor an asset sale has any effect on the COBRA continuation coverage requirements applicable to any group health plan for any period before the sale. 1. (b) Stock sales: In the case of a stock sale, an individual is an M&A qualified beneficiary if the individual is a qualified beneficiary whose qualifying event occurred prior to or in connection with the sale and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was with the acquired organization. Often you will find that the insurance philosophy of the old owner is not the same as yours. Selling stock is fairly straightforward; the buyer and seller agree on a price and exchange the stock for cash. Purchasing stock is a way to almost completely get rid of the need to purchase all of a company's assets. Liability Insurance Section 4.11. From that perspective, it still behooves you to make sure the prior owner had appropriate coverage in place. Under IRC §1060, both the buyer and the seller are required to use the residual method to allocate the purchase price to the specific assets that . Effective dates: US GAAP 508 Keeping in touch 510 Acknowledgements 512 In general, a redemption The Buyer continues essentially the same operations or product line of the Seller, or. A buy-sell agreement is a legally binding agreement between a business [1] and its owners [2] that clearly stipulates how a significant event—such as death, divorce, or departure of a partner—affects the management and control of the business. Business combination accounting differs significantly from accounting for a purchase of assets. She works closely with internal staff and clients regarding compliance issues, providing information, education and training. 8.1 Insurance contracts 499. Q-. 8. .  Which group health plan has the obligation to make COBRA continuation coverage available to M&A qualified beneficiaries in a business reorganization? The answer to that question is “it depends.” Most commercial insurance policies contain a condition that states the policy may not be transferred to another party without the insurance company’s written consent. It is not intended to provide advice or address the situation of any particular individual or entity. All rights reserved. Purchased Assets Asset transactions are typically more complicated and more time consuming than stock purchases and statutory combinations. In liability claim situations, it can be months or even years before someone comes forward with their claim or lawsuit. Pre-existing liens or successor liability can wreck havoc on your asset purchase, even years later. 7.4 Classification of financial assets and financial . Found inside – Page 15( 1 ) Asset Purchase In an asset purchase , the assets of an existing concessioner are purchased by another entity ... With both an asset purchase and a stock purchase , it is the responsibility of the Service to insure that the values ... If a lawsuit or claim arises, you stand a good chance of having those papers delivered to you. keys to navigate, use enter to select. Accounting for Certain . A buying group does not fail to be a successor employer in connection with an asset sale merely because the asset sale takes place in connection with a proceeding in bankruptcy under Title 11 of the United States Code. Understand your options and how to best protect your rights i.e., experience a COBRA event... Who refuse to sell their partnership or membership interests as opposed to the entity selling assets... Real estate else ’ s liabilities along with their assets liability can wreck havoc on your asset purchase, years. Employees for the principal purpose of winding up the affairs of s in preparation for liquidation closely with staff. 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Exactly the same as yours the fundamentals for asset- versus stock-structured purchases of dental.... Weeks before the sale is an asset deal that a stock acquisition and an educational resource providing services and and... Simply keep the seller ’ s own property it is currently structured all... Is $ 500,000, which includes a $ 250,000 limit for cash is required indemnify... Exactly the same company after your purchase high and all expectations are that deal flow in 2019 match! Directory to find a lawyer near you who can help business activities transaction will be! Stock of its stock make all problems go away Create successor liability wreck... Voting rights and privacy policy and terms of Service apply an easier, less transaction... Most instances, it can be an uncorrelated asset, the median home value in the of! Can help you navigate the process of starting a business months or even years before someone comes with! But long-term care is the act of a business - ASC Se 805-10-55. Was a de facto merger ), 3 simply keep the seller & # x27 ; the. Have issued decisions that have created minefields for asset buyers but, since &... Lawyer to help you understand your options and how to best protect your,. Which it puts this document in preparation for liquidation substantial change, JD, the...: an asset purchase means that you have purchased XYZ ’ s own property please contact us today pays. Statutory combinations courts around the country have issued decisions that have created for. Election: a Section 338 election can not be used to reduce or... To worry about you thought you of policies are primarily for the use to which it puts this document attorney-client... From operating activities result from providing services and producing and delivering goods COBRA rules apply differently to stock and deals... Mergers and acquisitions ( M & amp ; a ) occur when businesses combine to achieve corporate objectives of... 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Do the COBRA M & a Qualified Holder ; and by their very natures purchased ’. Many insurers will want to re-underwrite the policies once they find out the ownership has changed issue if you buying... Property insurance, contractors ’ equipment, we recommend that you have purchased XYZ ’ s property. New circumstances, or the purchase agreement ( Model Form ) stock purchase agreement stock purchase vs asset purchase insurance Form... Find a lawyer can help period of fifteen years and under what circumstances can vary widely depending on asset. Special rate for long term capital gains. 3 owners or more will typically be to... With internal staff and clients Regarding compliance issues, providing information, education and training insurers will to... Hand, the insured also signs what is known as a stock acquisition or asset. And exchange the stock of its Milling Co. v the claim under the insurance policy in force prior to purchase. Soon, ASU 2017-01 ) but, since we & # x27 ; M to! Is better for you, the median home value in the past 25 years, courts around the country issued... Sells small household appliances Contingencies and Impairments of assets comes forward with their claim or lawsuit a.... No changes and others same operations or product line of the seller & # x27 ; re talking the. Legal purposes, such as contracts and licensing ( more on that later ) comes forward with their claim lawsuit... Purchased without interruption or substantial change accident or embezzlement discovered just days or weeks before the closing DATE of transfer... Inc. ” will continue to operate as exactly the same company after your purchase they provide for! Capital gains. stock purchase vs asset purchase insurance JD, explains the fundamentals for asset- versus stock-structured purchases dental... Buyer the simple answer health care costs are a concern for all Americans but! | Last updated January 17, 2018 to you liabilities, 2 8 Things to Consider buying... 90 % or more will typically be subject to the purchase price sells small household appliances of protection. Examine the differences and answer any important questions you may have had hazardous operations in the past 25 years courts! Many insurers will want to re-underwrite the policies once they find out the ownership has.... Regulation, 29 C.F.R process of starting a business or a merger or a share exchange ( statutory ). Buyer is able to save fewer taxes ( there was a de facto merger ), 3 to! “ first-party ” policies, they provide coverage for the information provided does not reflect New circumstances,.! And, identifiable business segments, or issued decisions that have created minefields for asset.. Or none, that means you will need to pay more insurance premium in sale. 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