What is an Asset and Liability Transaction?
In the purchase of a company, all assets and debts are transferred to the buyer, who assumes them in their current state. This is different from acquiring the entire company, where you also assume old obligations, such as taxes due that have not yet been collected.
Asset and liability transaction explained
What exactly is an asset and liability transaction? In the most comprehensive version, you sell clients, inventory, and other goods, known in accounting as assets. In the transaction, you retain all the obligations, known as liabilities. The result is that the old company becomes an entity composed of money, the sale value, and all the debts. Sometimes, employees also remain the responsibility of the seller to arrange termination. In the most common form, all assets and debts are transferred, allowing the new company to start from scratch.
Share transaction
You can acquire a company by buying the entire legal entity, which means buying the corporation (SA). This is a share transaction. You go to the notary and acquire all the shares, replacing the former owner, the seller. Thus, you become responsible for all the obligations the company may have.
Association or foundation
An association or foundation cannot be sold, but it is possible to carry out an asset and liability transaction. In this case, all assets and debts are sold to another organization, often being the simplest way to proceed, simpler than, for example, a merger.
Risks
The reason behind this form of sale is that the buyer wants to avoid potential risks. However, this means that these risks fall on the seller. The sale price should reflect the possibility that debts may arise later. In practice, the difference is not that significant, as in the sale of an entire company, you usually also sign guarantees, remaining responsible for several years.
Position of employees
For employees, an asset and liability transaction can be unfavorable, as they may remain with the old company. The law protects employees, ensuring that they are automatically transferred with the business activities to the new owner. They must prove that the buyer continues with the operations to which they were linked.
More administrative work
This purchase results in more administrative work. In the sale of a company, all contracts are automatically transferred. For example, the lease contract remains unchanged. In an asset and liability transaction, a new tenant needs to be named, requiring a substitution agreement with the landlord. This applies to all contracts. Therefore, it is advisable to discuss with major clients before proceeding, as they are not obliged to continue business with the new owner.
