USA Company acquiring all of the stock of another company

[DEW]

Hi

I work for a small business that has a single owner. In an effort to grow the business, the owner has identified a target company to acquire. The owner wants to cut a check from the company he currently owns for all of the shares of the target company. If you are buying all of the shares of the target company, aren't you essentially buying all of the assets and liabilities of the company with any difference between price and asset and liability values going to goodwill?

The owner is telling me we won't acquire any of the assets of the company so in my mind, we are essentially buying their book of business.

Any help is appreciated.

Thank you

 

[DrStrangeLove]

Buying all the shares is buying a controlling interest in the target company triggers consolidation of the target's books with your books. That's not the same as buying all the target's assets and liabilities. If you just bought the assets and liabilities outright, you couldn't recognize goodwill on the acquisition, and you'd have to capitalize the direct acquisition costs into the value of the assets you acquired.

 

[DEW]

Turns out that through the stock purchase, we are buying all of the assets and liabilities of the company. I believe I have to assign FMV to each asset and the difference between the purchase price and the asset values goes to goodwill correct? Thank you

 

[DrStrangeLove]

Goodwill is the difference between the purchase price and the FMV of your net assets (assets less liabilities) at consolidation. And only when you consolidate your books. You don't bring the subsidiary's assets and liabilities into the parent's books as an operating business. Consolidation happens in a separate non-ledger worksheet each reporting period.

 

[anan.clippingtimes@gmail.]

Hi

I work for a small business that has a single owner. In an effort to grow the business, the owner has identified a target company to acquire. The owner wants to cut a check from the company he currently owns for all of the shares of the target company. If you are buying all of the shares of the target company, aren't you essentially buying all of the assets and liabilities of the company with any difference between price and asset and liability values going to goodwill?

The owner is telling me we won't acquire any of the assets of the company so in my mind, we are essentially buying their book of business.

Any help is appreciated.

Thank you

You're right—purchasing all of a company's shares usually entails obtaining all of its assets and liabilities since you become the sole owner of the business. Goodwill, which stands for intangible worth such as the clientele, reputation, or connections, is the difference between the acquisition price and the net assets (assets less liabilities).

A purchase of assets rather than shares may be a better course of action if the owner just plans to buy the book of business and not the liabilities or other assets. With this framework, you may selectively include the things you want (like customer contracts) without taking on extra obligations.

To make sure the deal is in line with the desired objectives, make sure the acquisition structure is clear and get advice from legal and accounting experts.