What to Know Before Buying a Business

What to Know Before Buying a Business (Asset Acquisition Edition)

July 25, 2025

By Melissa Fish, Corporate Lawyer & Founder of Fish Legal Counsel

Buying a business isn't just about numbers; it’s about understanding structure, risk, and long-term strategy. One of the most common (and complex) ways to structure a deal is through an asset acquisition, where the buyer purchases selected assets (and sometimes liabilities) of a company, rather than its stock.

In this post, I’ll walk you through the major components of an asset acquisition, including the tax impact, due diligence process, and what it really takes to get a deal across the finish line.

Prefer to watch instead of read? The video version of this post is now available—watch it here for a full walkthrough of the asset acquisition process.

Asset vs. Stock: What’s the Difference?

In an asset acquisition, the buyer hand-selects which assets and liabilities to acquire; things like equipment, intellectual property, customer contracts, and maybe a lease or two. This is fundamentally different from a stock acquisition, where all assets and liabilities (known or unknown) transfer by default.

That added control is appealing, but it comes with more work. In asset deals, each asset needs to be separately documented and transferred. That means more contracts, more consents, and more complexity.

The Hidden Risks in Stock Deals

When clients are considering a stock acquisition, I always flag the risk of inheriting undisclosed liabilities, like back taxes, unpaid wages, or warranty obligations that weren’t well documented. In those deals, we mitigate risk through reps and warranties, indemnification clauses, and (sometimes) representation and warranty insurance.

With an asset acquisition, we try to avoid those risks altogether by only assuming clearly defined liabilities.

Documentation Requirements

Asset acquisitions involve a lot of paperwork; far more than a stock deal. Depending on the business, you may need:

• Bill of Sale for tangible assets

• Assignment and Assumption Agreements for contracts

• IP transfer documents for trademarks, copyrights, or domain names

• Deeds for real estate

• Third-party consents for contracts with anti-assignment clauses

Miss a key contract or license, and you risk buying a business that can’t actually operate.

Let’s Talk Taxes

These deals are typically taxable transactions, since private companies don’t have liquid stock to use as consideration (which is what would trigger tax deferral in a merger or stock-for-stock exchange).

Here’s the high-level breakdown:

• Sellers may face double taxation: once at the entity level when assets are sold, and again when proceeds are distributed to shareholders.

• Buyers often benefit from a stepped-up basis…meaning they get to depreciate or amortize assets from their purchase price, not the seller’s original basis.

• As of January 19, 2025, under the One Big Beautiful Bill Act, 100% bonus depreciation applies to qualified property acquired in that year.

• In some cases, buyers may want to treat a stock acquisition as an asset acquisition for tax purposes, using a Section 338(h)(10) election. (More on that in a future post.)

  
  

Preparing for a Sale

Sellers can set themselves up for success by:

• Organizing financials and key contracts in advance

• Identifying assets and liabilities clearly

• Working with a broker or advisor to market the business

• Drafting a term sheet or LOI that sets expectations early

• Using a Confidentiality Agreement (NDA) and possibly an Exclusivity Agreement to protect both sides during negotiations

Want ready-to-use templates for some of these? I’ve created attorney-drafted templates for NDAs, LOIs, and more—designed for entrepreneurs and small business owners. Check them out here »

Due Diligence & Final Documentation

Once a deal progresses, buyers typically request detailed information from the seller, often in waves. These responses shape the final structure of the deal and the protections baked into the Asset Purchase Agreement (APA).

That agreement will cover:

• A detailed list of assets and liabilities being transferred

• The nature and timing of consideration (cash, note, stock, or combo)

• Representations and warranties from the seller

• Indemnification and any holdbacks or escrows

• Required closing conditions and post-closing obligations

In most cases, the buyer drafts the APA, so it’s crucial to review every section with care and clarity.

Final Thoughts

Asset acquisitions offer buyers more control, but they also require thoughtful planning, clear documentation, and strategic advice. If you’re navigating a business sale or acquisition and want peace of mind, I’d be glad to support you, whether through one-on-one counsel or practical legal templates you can use yourself.

Curious to learn more? You can watch the full video version of this overview here for a deeper dive into each step of the asset acquisition process.