Buying and Selling an HME Company

There are many reasons to buy or sell an HME company. An entrepreneur may have built the business from scratch and is ready to cash out and stroll the beaches of Cancun. At the opposite end of the spectrum, the owner may be tired of the daily regulatory surprises that are hitting the HME industry and is ready to sell and do something else like selling coconuts in Fiji.

A prospective buyer may understand that the industry is experiencing a massive paradigm shift and that with 78 million “baby  boomers” approaching old age, the demand for what the HME industry has to offer will increase exponentially. Therefore, the buyer feels that it is a good time to “get in.” Regardless of the reason behind wanting to sell—or to buy—there are basic legal considerations that the parties must understand.

QUESTION: What is the difference between a “stock purchase” and an “asset purchase?”

ANSWER: Let’s look at “ABC Medical Equipment Inc.” John Smith is the sole stockholder of ABC; he holds a stock certificate that says that he owns ABC. Let’s say that “XYZ Medical Equipment, Inc.” wants to purchase either the stock or the assets of ABC.

If XYZ purchases the assets, then the seller is ABC. At closing, ABC will execute a Bill of Sale that transfers all of its assets, such as inventory, desks, insurance contracts and patient files, to XYZ. When this happens, ABC becomes a “shell” corporation; it has no assets other than the money paid by XYZ.

On the other hand, if XYZ purchases the stock of ABC, then the seller is Smith. At closing, he will give his stock certificate to XYZ. When this happens, ABC remains intact; the only difference is that it is now owned by XYZ, rather than being owned by Smith. In other words, ABC is now a subsidiary corporation of XYZ.

QUESTION: When the assets or stock of ABC are sold to XYZ, does XYZ inherit ABC’s skeletons?

ANSWER: As a general rule, when XYZ buys the assets of ABC, XYZ inherits no liabilities other than those that XYZ chooses to inherit. For example, if 12 months after closing the government brings fraud allegations against ABC for actions committed by ABC before closing, then this is ABC’s problem—not XYZ’s problem.

Remember, in an asset sale, Smith continues to own ABC.