Is a Stock Purchase and an Equity Purchase The Same Thing?

ile the terms are often used interchangeably in casual conversation, there is a difference between a stock purchase agreement and an equity purchase agreement. The distinction primarily depends on the business entity and its ownership structure.

A Stock Purchase Agreement is a specific term used only for the purchase of ownership in a corporation. In a stock purchase, the buyer purchases shares (stock) directly from the shareholders. Ownership of the corporation remains intact — it’s just the shareholders who change. Generally, the corporation itself is not a party to the agreement, unless it’s buying back its own shares.

An Equity Purchase Agreement is a broader term that encompasses stock purchases and the acquisition of ownership in non-corporate entities, such as Limited Liability Companies and partnerships. In an Equity Purchase, the buyer purchases equity interests (ownership interest), which could be:

• Membership interests in a Limited Liability Company
• Partnership interests in a Partnership
• Shares (stock) in a Corporation

 Key Information about Equity Purchases for each entity type:

 Considerations for an Equity Purchase. When buying a business, an equity purchase may be simpler and faster than an asset purchase; however, it carries more risk for the buyer, as they will be assuming the sellers’ responsibilities, including not only assets but also liabilities and contractual obligations. Before closing or agreeing to purchase the business in an equity purchase rather than an asset purchase, the buyer must know and carefully evaluate the following:

Legal and Financial Due Diligence

• Liabilities: You inherit known and unknown liabilities, including debts, taxes, pending lawsuits, and contractual obligations.
• Contracts and Leases: Review all customer/vendor contracts, leases, loans, and employment agreements to ensure they remain valid after the sale.
• Financials: Analyze historical financial statements, tax returns, and any outstanding debts.
• Ownership Structure: Confirm the selling party actually owns what they say and that all equity interests are clearly documented and transferable.

Entity and Governance Review

• Operating or Partnership Agreement: Understand how the business is governed, and any limitations on decision-making or distributions.
• Consents Required: Some agreements may require consent from other members, partners, or third parties for ownership transfer.
• Litigation & Compliance: Check for any ongoing or potential legal or regulatory issues.

 Tax Implications

• Step-Up in Basis: Equity purchases usually don’t allow a step-up in the tax basis of assets (unlike asset purchases). This can impact depreciation and future tax liability.
• Hidden Tax Liabilities: You may inherit unpaid taxes or aggressive past tax positions.
• Structure of Deal: The purchase can sometimes be structured to mitigate tax impacts (e.g., Section 754 election in partnerships).

Employee and HR Issues

• Employment Contracts: Employees typically stay with the business, so buyer inherits all obligations (wages, benefits, liabilities).
• Employee Benefits Plans: Review for unfunded liabilities or compliance issues (especially retirement or health plans).
• Culture Fit: You’re buying not just a company, but its people and internal dynamics.

 Legal and financial due diligence, tax strategy, and strong contractual protections are essential to minimizing the risk exposure of the buyer post-closing to the extent possible.

Author: Kelly Roberts

Kelly Roberts is a business and bankruptcy attorney at Roberts Law, PLLC. She has over a decade of experience assisting businesses and business owners navigate contracts, partnership structures, negotiations, and dispute resolution. Kelly earned her Juris Doctorate from the University of Miami School of Law.

Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction or the jurisdiction applicable to your issue/matter. No information contained in this post should be construed as legal advice from Roberts Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.