Buying the whole history
Unlike an asset purchase, a stock purchase leaves the company itself unchanged; only its owners change. Contracts, permits, and employees usually stay in place, which can make the deal simpler to close, but past liabilities stay in place too, whether they involve taxes, lawsuits, or regulatory issues. Some contracts contain change-of-control clauses that give the other party rights when ownership shifts, so a stock purchase is not always free of consent issues. The structure is also common for minority investments and for buying out a co-owner, where the questions are less about liabilities and more about price, control, and rights going forward.
Representations, schedules, and indemnities
The heart of a stock purchase agreement is usually the set of representations the sellers make about the company and the disclosure schedules that list exceptions to them. Buyers rely on those statements, and the indemnification provisions decide what happens if they prove inaccurate: how much can be claimed, for how long, and from what source. Escrows, holdbacks, and representations and warranties insurance are common ways to fund those claims. Sellers should prepare the schedules carefully, since a disclosure made clearly is usually far better than a claim made later. Buyers should treat diligence findings as drafting instructions.
Questions for an early meeting
We want to know how the price was set, whether part of it depends on future performance or a post-closing adjustment, and which sellers are signing. If the company has several shareholders, it matters whether all of them are selling and whether an existing shareholder agreement gives others rights of first refusal or tag-along rights. We also look at whether the sellers will stay on, and how their employment or consulting terms connect to the purchase price. Tax treatment differs between stock and asset deals, so bring your accountant into the conversation early. Many problems that surface at closing could have been raised in the letter of intent.
