In M&A, structure drives everything.
Whether you’re acquiring a business, preparing for an exit, or engineering a strategic consolidation, the choice between an asset purchase, stock purchase, or merger structure has significant downstream effects—on taxes, legal risk, closing complexity, post-closing obligations, and even cultural integration.
Each structure brings different pros and cons. And while the related contracts—typically an Asset Purchase Agreement, Stock Purchase Agreement, or Merger Agreement—capture the specific terms, they reflect broader strategy, risk tolerance, and business objectives.
This overview offers a side-by-side comparison of all three M&A structures, grounded in real-world deal execution and aligned with what matters to experienced acquirers, sellers, founders, and investors. Along the way, we’ll highlight how certain recurring deal terms—like working capital adjustments, indemnification, and representations and warranties—appear across each structure.
| Feature | Asset Purchase | Stock Purchase | Merger |
|---|---|---|---|
| What is Acquired | Specific or all assets, and specific assumed liabilities | Ownership (stock) of the entire company | Entire business entity via statutory combination |
| Liabilities Assumed | Only if expressly assumed | All liabilities unless carved out | All obligations transfer by law |
| Tax Treatment | Buyer receives stepped-up asset basis; seller gets partial capital gains / partial ordinary income treatment | No step-up; seller gets largely capital gains treatment (usually) | Depends on structure (forward, reverse, triangular) |
| Third-Party Consents | Often required for contract & lease assignments | Generally not required unless ‘change of control’ consent is mandated by the acquired contract | Generally not required unless ‘change of control’ consent is mandated by the acquired contract |
| Employee Continuity | Employees must be rehired by buyer | Employees typically remain under acquired company | Employees transfer to surviving entity |
| Working Capital Adjustment | Common | Common | Common |
| Representations and Warranties | Yes, tailored to asset scope; broad if all business assets are acquired | Yes, broad and acquired-company focused | Yes, broad and merged-company focused |
| Indemnification | Yes, often with escrow, caps baskets | Yes, often with escrow, caps and escrow | Yes, heavily negotiated and statute-influenced |
| Escrow/Holdbacks | Yes, for working capital and purchase price adjustments, and for post-closing indemnification | Yes, for working capital and purchase price adjustments, and for post-closing indemnification | Yes, for working capital and purchase price adjustments, and for post-closing indemnification |
| Use Cases | Carve-outs, distressed sales, IP licensing deals | Clean ownership transitions, tax-driven exits | Strategic roll-ups, reorganizations, JV consolidations |
An asset purchase structure allows the buyer to select what business assets they want to acquire and leave behind what they don’t. This structure is widely used when:
The related Asset Purchase Agreement typically defines the acquired assets, excluded assets, and assumed liabilities with detailed descriptions and exhibits.
From a legal risk perspective, this structure allows buyers to avoid successor liability for debts, lawsuits, or regulatory exposure tied to pre-closing operations.
But asset deals also come with added third-party transfer approvals associated with the following:
From a tax standpoint, buyers benefit from a step-up in basis, enabling post-closing depreciation on acquired assets. Sellers of C-Corporations may face double taxation—once at the entity level on the gain and again at the shareholder level when proceeds are distributed.
Other core features include:
Buyers who are more risk-averse or want to surgically acquire parts of a business often prefer asset deals. But transactions involving the purchase and sale of assets and the related asset purchase agreement still require coordination across financial, legal, tax, and operational teams.
In a stock purchase, the buyer acquires the company “as-is” by purchasing its equity—typically from the founders, shareholders, or investors. The legal entity remains intact, including all of its contracts, licenses, relationships, and liabilities. While we refer here to “stock” purchases for simplicity, this structure also applies to other equity acquisitions, such as purchases of membership interests in a limited liability company, or partnership interests in a limited partnership or LLP. In each case, the buyer steps into ownership of the entity itself, rather than only purchasing assets independent and distinct of any associated liabilities—meaning all rights, obligations, and operational continuity generally remain in place after the acquisition in the same manner as existed before the transaction.
This structure works best when:
The Stock Purchase Agreement governs the purchase and sale of the underlying equity (and the business beneath it) and will include some or all of the following:
Buyers should perform detailed corporate due diligence on the selling stockholders and the underlying target business to evaluate, among other things:
Stock or other equity purchase transactions also require careful securities compliance, particularly for private companies relying on exemptions from registration. Shareholder and board approvals are often required, and dissenters’ rights or appraisal obligations may arise under certain state laws.
Buyers should be aware that they inherit everything (all rights and liabilities)—so proper diligence, insurance considerations, and appropriate deal terms are essential to avoid the buyer acquiring undesirable and surprise liabilities post-closing.
A merger achieves a change of control by combining two entities through statutory law. One company merges into the other, or both merge into a new entity. The result is legal unification—without the need for comprehensive assignments of assets and properties, stock transfers, third-party consents, etc.
This structure is attractive for:
The Merger Agreement outlines:
Because a merger is governed by statute, it can bypass certain obstacles. Most contracts automatically transfer. Licenses and permits may be transferable without governmental or other third-party approvals.
But with that ease comes complexity:
In larger or multi-entity transactions, mergers are often favored for their scalability—but they require sharp execution on diligence, structure, and closing mechanics.
Whether the deal is structured as an asset purchase, stock purchase, or merger, the agreements—Asset Purchase Agreement, Stock Purchase Agreement, or Merger Agreement—will contain common core elements:
It is common in any of the three deal structures to see supplemental payment features layered into the transaction, such as:
These structures can be used individually or in combination, depending on the deal’s financial, tax, and operational objectives.
There’s no one-size-fits-all structure. The best M&A deals align the form (structure) with the function (deal objectives).
Consider:
Remember, documents don’t drive structure. Strategy does. The Asset Purchase Agreement, Stock Purchase Agreement, or Merger Agreement is just the expression of that strategic choice.
Let us help you make the right one.
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