entitypurchase

Entity purchase is a type of business acquisition in which the buyer acquires an entire legal entity, typically by purchasing all or substantially all of the target’s equity, or by merging with the target. The buyer thereby gains control of the entity and, in many cases, assumes its assets, contracts, and liabilities as a going concern. This contrasts with an asset purchase, where the buyer selects which assets to take and often leaves liabilities behind.

Common methods include purchasing the target’s stock directly, a merger, or a transfer of control through a reorganized corporate structure. Because the entity continues to exist, some contracts, licenses, and employee arrangements can transfer with fewer third-party consents, but many agreements require consent or novation. Liabilities, potential litigations, permits, and regulatory obligations may transfer as well, so thorough due diligence is essential.

Key considerations include tax effects, accounting treatment, and regulatory approvals. Tax consequences differ: stock purchases can preserve the entity’s tax attributes but may leave liabilities with the buyer; asset purchases can allow a basis step-up and selective liability assumption but require more contracts to be novated and may trigger more seller liability exposure.

Advantages include continuity of the entity, simpler transfer of contracts, and potential ease of integration. Risks include hidden liabilities, contractual constraints, and tax or regulatory complications. Entity purchases are common in mid-market M&A and private equity transactions.