In the sale of a company, business debt must either be paid off by the Seller or assumed by the Buyer. In either case, regardless of an asset sale or a stock sale, the repayment of debt by Seller or the Buyer’s assumption of debt reduces the amount of cash the Seller receives for the sale. In an asset sale, the Seller will need to take the money that is paid to them for the assets and repay any business debt they owe. It could be that the Buyer agrees to assume the Seller’s business debt, but the Buyer’s assumption simply means that will reduce the amount of cash the Seller would have received if there had been no assumption and Seller had to use some of the cash they received for the assets to pay off the debt. In a stock sale, the Buyer buys the entire business – all assets and all labilities – and considers the assumption of debt as part of their payment.
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David Traversi, Partner, Newport (email@example.com)