Assets vs. Stock Purchase when Buying or Selling a Business in Illinois

 Posted on May 08, 2025 in Business Law

Whether you are looking to buy or sell a business, one of the most important decisions you will face is how the transaction will be structured. Business sales are typically completed using one of two legal strategies: an Asset Purchase Agreement or a Stock (or Membership Interest) Purchase Agreement.

At Gateville Law Firm, our Kendall County, Illinois business law attorney helps business owners and entrepreneurs navigate these complex legal and tax decisions to ensure a smooth, profitable transition.

What Is an Asset Purchase Agreement?

An Asset Purchase Agreement (APA) is a legal contract in which the buyer purchases specific assets of the business rather than buying the company as a whole.

Assets typically involved in a business sale include equipment and other inventory, real estate, customer lists, intellectual property, goodwill, and contracts. The buyer usually does not assume liabilities unless they are specifically included in the agreement. This gives buyers more control over what they are acquiring.

What Are the Pros and Cons of an Asset Purchase Agreement? 

Pros of an Asset Purchase:

• Buyers avoid unknown or unwanted liabilities

• Flexibility to choose only valuable assets

• Step-up in tax basis on purchased assets, offering depreciation benefits

• Easier for new businesses or franchise purchases

Cons of an Asset Purchase:

• Seller may face higher taxes due to depreciation recapture

• May require third-party consents to transfer leases, licenses, or contracts

• It is more complex to separate out which assets and liabilities are included

• May complicate ongoing relationships with vendors or employees

What Is a Stock Purchase Agreement?

In a Stock Purchase Agreement (or Membership Interest Purchase for LLCs), the buyer purchases the seller’s ownership interest in the business entity (such as the corporation’s stock or LLC’s membership units). This means the buyer takes over the business as a whole — assets, liabilities, and all.

This structure is typically used when the business has valuable contracts or licenses that are difficult to transfer. It may also be used when the buyer wants to maintain the business’s existing structure, employees, and vendor relationships or when the company is a corporation or LLC with clean financials and clear ownership.

A Stock Purchase Agreement works best when a business has a license that they want to maintain. Hence, the new buyer wants to maintain the license because the license is a valuable asset of the business.

What Are the Pros and Cons of a Stock Purchase Agreement? 

Pros of a Stock Purchase:

• Simpler transfer of entire business, including contracts and licenses

• Employees, vendor relationships, and operations continue uninterrupted

• Typically, easier for the seller (especially for C corporations)

• May allow for smoother continuity with clients and customers

Cons of a Stock Purchase:

• Buyer assumes all liabilities, known and unknown.

• Less favorable tax treatment for the buyer

• Risk of hidden debts or legal problems

• Requires careful due diligence and legal protection like indemnification.

Examples of an Asset Purchase Agreement vs. a Stock Purchase Agreement

Let us say a small auto repair shop in Plano is being sold. The buyer wants the equipment, the name, the phone number, and the customer list, but does not want to assume responsibility for past debts or employment issues. In this case, an Asset Purchase Agreement would be the preferred method.

On the other hand, if a home healthcare agency in Oswego is being sold with complex insurance contracts, licensing, and employees, a Stock Purchase Agreement might be more efficient, allowing the entire structure to stay intact.

Regardless of the purchase method you use, an Illinois business lawyer is essential for managing the transition process and making sure that paperwork, tax filings, and other important documents are handled accurately.

Work with an Oswego, IL Business Lawyer Starting with a Free Consultation

At Gateville Law Firm, we have helped clients throughout Kendall County structure successful business sales and purchases. Our legal team brings together business law, tax planning, and contract negotiation experience to protect your interests every step of the way.

Buying or selling a business is one of the most significant financial transactions of your life. Call Kendall County, IL business law attorney today at 630-780-1034 to schedule a business law consultation and find out which approach is right for you.