What Happens to Business Bank Accounts in a Stock Purchase?


Note:  This post is an update to one of our blog’s more popular posts of the past few years, in what we called the “M&Ailbag”.

Question:   I’m thinking about purchasing all of the stock of a small business and the bank account that was opened by the company’s previous CEO (who is leaving).  Would the seller need to close that account and I open a new one?  I am thinking that I just get added to the existing account as a signor and, when the amendments are returned from the corporation commission, they would be taken to the bank to have the exiting signor removed? 

The two (main) ways to buy an existing business

Before answering this question, it is helpful to understand the two primary ways you can buy an existing business:  an asset purchase and a stock purchase.

Asset Purchases explained

In an asset purchase is relatively easy to understand because it’s basically what it sounds like; the buyer agrees to purchase all (or maybe just some) of the assets of the target business as agreed upon with the seller. 

In other words, and this distinction is important, the selling business is agreeing to part with some or all of its assets by transferring them to the buyer in exchange for cash or other consideration from that buyer.   

Again, after an asset purchase is complete, the target business’ owners still own the business!   However, that business no longer owns the assets which were sold in the deal.

The owners of the selling business can then either dissolve the target business entity or, if they still possess certain assets, sell them off to another buyer or, in certain rare instances, continue on with or focus the business using the assets they still possess, take the business in a different direction, etc., etc.

Stock Purchases explained

On the other hand, there is the stock purchase (also known as an “equity sale” or purchase).  In a stock sale, the buyer agrees with the owners of all or a controlling interest in the common stock of the target business to buy those owners shares. 

In other words, the sellers in a stock sale are the shareholders, NOT the business itself.  These shareholders are agreeing to part with their stock and transfer the shares to the buyer in exchange for cash or other consideration from buyer. 

By acquiring all of the stock of a company, the buyer in a stock purchase effectively steps into the shoes of the seller.  The assets of the company stay put with the new company, which is now controlled by the buyer.

However, unlike in the asset purchase above, by acquiring all of the equity ownership of a business, that buyer also takes that business “warts and all”, receiving not only all of the assets but also any liabilities (known and, scarier still, unknown) which the company may have.  

So what happens to assets of the business in a stock purchase?

Now I’ve scaled down the discussion of the pros and cons of asset vs. stock purchases for purposes of this article.  If you are considering buying (or selling) a business and are still fuzzy on which direction would be best for you legal-wise, feel free to use the contact form to the right to schedule a virtual meeting with me to go over the nitty gritty, as well as your specific questions.   

Now back to our (or, rather, the business’) bank accounts.  As far as the bank account goes (and this will apply for checking or savings, CDs, etc.), if it is truly the property of the company you are buying, then the account will automatically come with the company as part of the stock purchase. 

Again, the only thing that is changing is the ownership of the target company or, to be technically accurate, the the common stock of the target.  Unless otherwise agreed upon between buyer and seller, the assets of the business stay in place and do not change hands. 

Therefore, as early on in the sale process as possible, it is critical as a buyer that you identify and verify the existence of any such bank accounts (not to mention the cash that’s in them!), and how such accounts are exactly titled.

For accounts that are titled in the name of the business, any signors on the account who will not be staying on under new ownership will have to be removed pre-closing, while new signor or signors are be added. 

For that, the bank may want to see, at a minimum, proof of approval or ratification of the stock purchase by the Board of Directors (if a corporation) or the members (if an LLC), as well as verification of the change of ownership in the Corporation Commission records.  It’s always a good idea to discuss what the particular bank will require in advance of closing to make sure you or your lawyer can provide it, so as to keep any banking disruption to a minimum.  

Never buy a business without proper Due Diligence

This brings me to a larger point; unless you’re doing it with money you’re prepared to lose (and then some), buying a business—whether as a stock or asset sale—is not something to be entered into lightly.   

This is particularly true of stock or equity purchases, where unknown but assumed liabilities from such things like pending lawsuits and claims against the business or underfunded payroll tax or pension liabilities could end up costing an unwary buyer as much as (and perhaps more than) the purchase price paid for the business.

For these reasons, thorough due diligence of the target company is essential to make sure you as a buyer: (a) are truly getting what you are purchasing and (b) know exactly you are getting yourself into. 

To this end, before entering into any purchase contract for a business, you will want to make sure that you have an experienced team of professionals, as well as give them (and yourself) enough time and opportunity to conduct adequate due diligence and other investigation on the company you plan to buy the stock of.

Watch out for pre-Closing seller shenanigans

One last point:  We almost always recommend to our buyer clients that they include some form of “regular course of business” or language in their purchase agreement (or, heck, even in their LOI or MOU) to prevent your seller from selling, transferring, or disposing of any property—such as a bank account—of the business prior to the closing date. 

Such clauses usually restrict the seller from doing anything that would materially affect or diminish the property of the business except as seller would otherwise do in the ordinary course of business.

It should go without saying that provisions like the ones above should be carefully thought through and crafted in any definitive agreement with your seller.  At a minimum, you should always have a business attorney experienced in business acquisition matters review any purchase agreement and all related documents and disclosures before you sign them and hopefully while there’s still time to change anything that was not previously agreed upon by you.


Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a startup, technology, and e-commerce law practice advising founders and management teams on company startup, corporate and technology transactions, e-commerce, as well as Internet privacy concerns. The firm serves corporate and individual clients throughout Arizona, the United States, and internationally. Our offices are conveniently located along the Camelback corridor in Phoenix’s financial district. For more information about our business/corporate law practice, feel free to reach out using the contact form on the right or call us at (602) 222-5542 to schedule a meeting.