Question

Cookie Monster wants to merge his cookie manufacturing business with the milk business that is owned by Matilda Milk, Inc. Cookie Monster would like for you to explain the difference between buying the stock of Matilda Milk, Inc or buying the assets of Matilda Milk, Inc. Please explain the general differences between a stock acquisition or an asset acquisition.

Answer:

Answer 1

Let's start with an example : One of your friend has a packet of food which is locked and your friend has the key to open it. Now you have two options either to buy a key (i.e. share) or buy only dish you like from that packet. In 1st case when you buy key (share) you will get whatever is there in packet. In 2nd case you will only get the Dish you like and you have to pay only for that.

So, General difference between Asset acquisition and Stock acquisition are:

Asset Acquisition+

1. You acquire some or all the assets of company as per you need. Beneficial when you want to acquire only some part of business.

2. Consideration will be paid to target company.

3. Target company still exist as separate legal entity.

Stock Acquisition

1. You acquire everything that that company owns as well as liable for (i.e. reported liabilities as well as potential ones too)

2. Consideration will be paid to the share holders of target company.

3. Target company may exist as separate legal entity or may not exist depends on the accounting method followed (accounting method will be based on intention of company)