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You buy corporate (ie equity), then you get the entire balance sheet ie asset plus liabilities, plus contingent liabilities.
Contingent liabilities are typically not disclosed in a quantified format (or are simply unknown) and are the big, unquantified concern. So, if the company you buy has litigation exposures and someone sues the company 5 years from now, that's your problem. Same if the company has polluted stuff in the past or broken laws or underpaid tax.
You can try to get warranties and indemnities from the seller so you can try to claw any losses back from the seller. I wouldn't place much trust in that.
If you buy assets only, then you avoid all the actual and contingent liabilities of the business, other than some liabilities which transfer with the assets (eg pollution remediation liabilities which an owner of land, in some circumstances, can be liable for even if it didn't cause the pollution).
Bear in mind that buying the company means you also are buying obligations to the employees, including termination payments, pension obligations etc. Again, not a problem if you just buy assets, although some laws can override that in some jurisdictions.
So lets say for an oil and gas company as an example.
Acquisition at corporate level = Take over the whole company. Basically company is absorbed into yours with all assets and liabilities and hence ceases to exist
Acquisition at asset level = =Only buy the land, acreage and production of the target? The company still exists?
Thanks for the reply
It ceases to exist if you're doing merger. That's possible in some US jurisdictions, but generally not in the legal jurisdictions I'm more familiar with (which run under more UK style corporate laws). Mergers can have tax advantages, but I'm not familiar with those.
If it is a merger, than what you say is right. If it's just an acquisition, as owner you hold equity in the company, the company still exists and it holds the assets and liabilities.
You'd probably buy a lot of contracts relating to the asset and operations as well eg take over employment contracts, third party contractor contracts, water and other supply contracts, warrantees/guarantees provided by the equipment providers, contracts with oil the oil company you supply to etc. Unless you planned to completely redo the operations and supporting infrastructure.
All that means getting the contracts assigned to you (with consent of the counterparty unless the contract allows assignment without consent) or novating the contracts. That's a big hassle, can potentially destabilise the deal if a critical contract doesn't consent and is one of the reasons that acquiring the company is easier.
Note that contractual consents may still be an issue, although usually to a lesser extent, as many contracts have clauses requiring the counterparty to consent to any change of control.
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