When I started learning about acquisitions, I thought buying a business was a straightforward process: agree on a price, sign paperwork, and take ownership. What I didn’t realize at first was that there are two fundamentally different ways to buy a company: through an asset purchase or through an equity purchase.
Over time, I’ve done both, and I’ve come to appreciate the advantages and trade-offs of each. Understanding the difference between buying assets and buying equity has saved me from major risks, shaped my negotiation strategies, and given me confidence when structuring deals.
In this article, I’ll break down how I view asset deals versus equity deals, when I prefer one over the other, and the lessons I’ve learned from navigating both approaches.
Why the Structure Matters
The structure of a deal isn’t just a legal technicality; it has real implications for liability, taxes, and operations. Two businesses with the same purchase price can have very different outcomes depending on whether I buy assets or equity.
The choice determines:
- What liabilities do I inherit?
- How ownership transfers.
- What contracts and licenses carry forward?
- How employees are treated.
- What risks am I exposed to?
That’s why I always slow down at this stage and carefully evaluate the best structure for the specific business.
Buying Assets: What It Means
In an asset purchase, I’m buying the actual pieces of the business: its equipment, inventory, intellectual property, customer lists, goodwill, and sometimes contracts. I’m not buying the legal entity itself. The seller retains ownership of the original company, but I acquire the pieces that make the business run.
This approach lets me “cherry-pick” what I want to buy. I can leave behind liabilities, debts, or problematic contracts. I essentially start fresh with the assets under a new entity.
Advantages of Asset Purchases
From my experience, asset purchases have several benefits:
- Cleaner transfer: I can avoid inheriting hidden liabilities.
- Flexibility: I can choose which assets and contracts I want.
- Risk reduction: Since I’m not buying the company entity itself, I’m shielded from certain past legal issues.
- Fresh start: A new entity allows me to rebrand or restructure as needed.
Drawbacks of Asset Purchases
But they’re not perfect. Some challenges include:
- Complexity of transfer: Each asset must be transferred individually. Licenses, permits, and contracts may need renegotiation.
- Customer perception: Customers may view it as a “new company,” even if operations continue the same.
- Employee issues: Employment agreements may need to be redone.
Buying Equity: What It Means
In an equity purchase, I’m buying the ownership interest in the company itself, its stock, membership interests, or partnership shares. The legal entity remains the same; I simply step into the shoes of the prior owner.
This approach means the company continues uninterrupted. All contracts, licenses, employees, and relationships stay in place. From the outside, little appears to change.
Advantages of Equity Purchases
Some of the benefits I’ve experienced with equity deals include:
- Continuity: Operations, contracts, and licenses carry forward seamlessly.
- Customer and vendor stability: Relationships don’t have to be renegotiated.
- Simpler paperwork: I’m buying the entity, not transferring assets one by one.
Drawbacks of Equity Purchases
But equity purchases come with serious risks:
- Liabilities: I inherit all past liabilities, even those undisclosed.
- Less flexibility: I buy the whole company, including parts I may not want.
- Due diligence pressure: I must dig deeply to uncover hidden risks.
My Personal Framework
Over time, I’ve built a framework for deciding between asset and equity purchases.
- If the business has messy books, potential legal issues, or unknown liabilities, I push for an asset purchase to minimize risk.
- If the business has critical licenses, long-term contracts, or brand identity that must stay intact, I lean toward an equity purchase for continuity.
- If I need flexibility to restructure, I prefer assets.
- If stability and seamlessness matter more than cleanup, I prefer equity.
Stories From Deals I’ve Done
In one acquisition, I bought assets because the company had potential legal exposure from prior environmental issues. By structuring it as an asset deal, I protected myself from inheriting those liabilities. It was more complex paperwork, but far safer.
In another, I bought equity because the company held valuable long-term contracts that couldn’t easily be reassigned. An equity purchase allowed me to keep those contracts in place, which was critical to maintaining revenue.
Both deals taught me that structure isn’t about preference, it’s about strategy.
How I Negotiate Structure With Sellers
Sellers often prefer equity sales because they can walk away clean and may receive better tax treatment. Buyers often prefer asset sales to reduce risk. This tension creates negotiation.
When I want an asset deal but the seller pushes for equity, I use these strategies:
- Emphasize the risk I’d inherit with equity and explain why the price would need to drop.
- Offer creative compromises, like indemnification agreements or partial holdbacks.
- Show how an asset deal can still protect its employees and customers.
Negotiating structure requires patience and education. Many sellers don’t fully understand the difference until it’s explained clearly.
Mistakes I’ve Made
One mistake I made early was underestimating the complexity of asset transfers. I thought an asset deal would be straightforward, but transferring contracts and licenses turned into months of work.
Another mistake was assuming equity deals were always too risky. In reality, equity purchases can be safer if continuity is critical and the seller has clean books. Now, I weigh the specifics instead of defaulting to one structure.
Final Thoughts
The choice between buying assets and buying equity is one of the most important decisions in any acquisition. It determines what I inherit, how smooth the transition will be, and how much risk I’m really taking on.
I’ve learned to approach this choice with clarity, discipline, and flexibility. There’s no one-size-fits-all answer. Each deal demands its own analysis. But by understanding the differences deeply, I can protect myself from hidden risks while unlocking the opportunities that matter most.
I continue sharing lessons from my acquisitions, private equity, and real estate strategies at DrConnorRobertson.com, where I document the playbook I’ve built through years of deals and discipline.