Yeah, yeah. Hey gang robert who's from feeding factory and I want to talk to you about something that you know, sometimes you get so involved in selling businesses that you don't realize that you have all these TLS or three letter acronyms that people don't understand. And so I just got a letter from one of my clients and he was talking about the difference between deal structure when selling a business and so we're going to cover what's the difference between a stock purchase agreement and an asset purchase agreement because they're pretty fundamental. And often in the y or the letter of intent, it's going to be listed whether they want to do a stock purchase agreement or an asset purchase agreement. And so as both the seller and a buyer often if you don't know which one to do and I'll give you exceptions to the rule before we get through the entire video. But I like asset purchase agreements and there's some fundamental differences and I'm going to go into those right now. So an asset purchase agreement means you're buying the assets of a company. So you're gonna set up another shell company and you're gonna buy the assets and you're gonna put it in there.
So for example, when I was buying a, I personally bought a boat company, I boat manufacturer for, for fly fishing and many of you that know me know that I love to fly fish and we're up here in my mountain house right now and it's a raining day and I decided, hey, it's probably good to get some work done. So I bought it with an asset purchase agreement. And so when you do that, all you have to do is just get the assets of it and put it in there. So The differences are the liabilities of the old company don't transfer. So if they owe the bank $100,000, you buy the assets and you put them in there and they're unencumbered and then they have to pay off the debt. Obviously if somebody has a loan on it, you can't sell the assets out from under them. So they're going to have to clear that debt with the proceeds and we can handle that in escrow. But an asset purchase agreement means you're just buying the assets of a company. So it's not your job to find every liability that they had that sticks with the other company. So conversely, if you do a stock purchase agreement now the due diligence is much harder.
You have to find all the deaths of the company And often that you can make promises or reps and warrants in the contract Of what that means. But a stock purchase agreement means you're buying all the assets, all the liabilities of the company and sometimes you can do things like have the seller warrants certain risks and there's ways to do it. But stock purchase agreements are much more complicated, 80-90% of the deals that we see on high growth lifestyle companies are asset purchase agreements sometimes with our bigger companies or they have a lot of I. P. Or licensor intellectual property and licenses, stock purchase agreements make more sense. For example, uh if you bought a company and had a lot of license here, let's take the boat manufacturer right. We were licensed as the U. S. Coast Guard approved manufacturer. We were a boat dealer. We also were a car dealer because we had to put tags on. Uh we had to put tags on the trailers for them to drive at home. And we were ironically an auto manufacturer because we had to make the trailers and put them in on it.
So That's a lot of license here. It's a lot of 123 day classes that we had to take. So in that circumstance when there's a lot of licensor you can if you want to you can do a stock purchase agreement and the licenses transfer with the company. Again, you have to be a little bit more careful about your diligence and making sure that you identify all the liabilities the company might be exposed to. That includes environmental risks and business risks. So if you're not sure what to use 80 to 90% of the time, I would really recommend an asset purchase agreement if it's a company with less than $20 million in sales, there's obviously exceptions to it. And if you have any questions about what those exceptions are, what it looks like, why don't you just give us a call it at Freedom Factory? You know, we have great middle of the fairway, S. P. A. S and a P A. S. Or stock purchase agreements and ask that purchase agreements you can take to your attorney can cut down your legal fees, and it makes it pretty darn simple. Thank you so much for watching, please like and subscribe, and we'll see you.