Deal Structuring in E-Commerce M&A: Asset Purchases vs. Stock Purchases

The threshold decision in any e-commerce acquisition is whether to structure the deal as an asset purchase or a stock purchase (or, for LLCs, a membership interest purchase). For e-commerce businesses, asset purchases are often preferred by buyers because they allow selective assumption of liabilities — the buyer can acquire the inventory, intellectual property, customer lists, domain names, and platform accounts while leaving behind undisclosed or contingent liabilities. This is particularly important in the e-commerce context, where platform bans, chargeback exposure, and pending regulatory investigations can represent substantial undisclosed liabilities.

Sellers, by contrast, often prefer stock deals because they typically produce capital gains tax treatment on the entire purchase price rather than a mix of ordinary income (on depreciation recapture and certain asset categories) and capital gains. The Revision Legal e-commerce M&A team advises both buyers and sellers on the tax and liability implications of deal structure and negotiates the key provisions that protect each side.

Platform Account Transferability: A Critical Due Diligence Issue

One of the most significant and underappreciated issues in e-commerce M&A is the transferability of platform accounts. Amazon Seller Central accounts, Shopify stores, Etsy shops, and eBay accounts are governed by platform terms of service that typically prohibit or restrict assignment without the platform’s consent. Amazon’s Seller Agreement, for example, does not permit the transfer of an account to a new legal entity without Amazon’s approval, and Amazon regularly denies or delays such approvals.

• Seller retention during transition: The seller continues to operate the platform account under their identity while the buyer builds a new compliant account — often used for Amazon acquisitions.
• Entity retention: Instead of an asset purchase, the buyer acquires the legal entity that owns the account, so the account itself does not transfer.
• Platform approval process: For platforms that allow transfer with approval, the buyer submits the required documentation and waits for platform consent before closing.
• Earnout tied to successful transfer: A portion of the purchase price is held in escrow and released only after successful account transfer or establishment of a new account with equivalent performance metrics.

Intellectual Property Issues Specific to E-Commerce

E-commerce businesses often have valuable intellectual property that is not properly documented or secured. Buyers should conduct a thorough IP audit as part of due diligence, including:

• Verification that all trademarks used by the business are registered in the relevant jurisdictions and that registration is current
• Review of USPTO TSDR records to identify any pending office actions, inter partes proceedings, or third-party oppositions
• Audit of Amazon Brand Registry enrollment and Transparency program participation
• Review of all software, algorithms, and tools used by the business to confirm ownership (not just a license) or appropriate licensing terms
• Identification of any customer-facing content (product descriptions, images, videos) that may be licensed from third parties rather than owned
• Review of all domain registrations to confirm ownership and upcoming renewal dates

Representations, Warranties, and Indemnification

The purchase agreement in an e-commerce M&A transaction should include comprehensive representations and warranties covering the specific risks of online commerce, including:

• Accuracy of financial statements, including representation that revenue figures reflect actual completed sales (not pending returns or chargebacks)
• No pending or threatened platform bans, account suspensions, or restrictions
• Compliance with all applicable federal and state laws, including FTC advertising rules, CAN-SPAM, COPPA, and state consumer privacy laws
• No pending data breaches or unauthorized access events
• Accuracy of inventory representations (quantity, condition, and valuation)
• No material customer complaints or pending regulatory investigations

The indemnification provisions should address the post-closing survival period for these representations and set appropriate caps and baskets that reflect the risk profile of the particular transaction. Representation and warranty insurance (RWI) is increasingly common in e-commerce transactions above $5 million in enterprise value and can allow sellers to achieve a cleaner exit while giving buyers additional protection.

Revision Legal’s e-commerce M&A attorneys represent buyers and sellers in transactions of all sizes, from Shopify store acquisitions to multi-platform aggregator deals. Contact us at revisionlegal.com/contact or visit our E-Commerce practice page.

Mergers and acquisitions involving e-commerce businesses require the legal assistance of lawyers with deep experience and success with e-commerce sale/purchase transactions. E-commerce M&As are unique because e-commerce business “space” has some unique features. Of course, there are many overlaps between standard business mergers and acquisitions (“M&A”) and an e-commerce M&A. Thus, you need attorneys with industry-specific and general M&A business legal skills. If you need help with your ecommerce M&A, contact us here at Revision Legal. Revision Legal is an e-commerce business. We have a “can-do and get-it-done” attitude, and we understand the unique challenges online businesses face. In terms of experience, we have:

• Handled and advised on the consummation of sale/purchase of hundreds of online businesses
• Been general counsel to e-commerce aggregators, roll up funds, and holdcos, to one of the largest brokers of digital assets, and to large and highly popular blogs, message boards, and online communities
• Handled e-commerce financing, including venture capital, debt, equity financing, and credit facilities
• Litigated several complex e-commerce business disputes, including domain name ownership disputes, trade secrets claims, contract and distribution disagreements, etc.
• And more

As noted, business M&As are legally complex and often practically and personally complex. Many e-commerce firms are small, closely held businesses, and as such, there are many potential legal issues relevant to that fact. For example:

• Will the owners and “key” employees remain after the M&A?
• If not, will the seller’s owners and “key” employees be asked to sign non-compete agreements?
• How much of the revenues/profits of the acquired e-commerce business is a function of the work of those owners and “key” employees?
• Will any sort of transition services be needed from the seller’s “key” employees?
• And more

Aside from these types of issues to be negotiated in the Purchase Agreement, any successful e-commerce M&A will require due diligence with a focus on unique features of e-commerce businesses. Standard M&A due diligence will, of course, look to demonstrate and verify various aspects of the deal, such as proof of revenue, inventory (if any), profits, compliance with corporate formalities, compliance with laws, codes and regulations, freedom from litigation, information about financing and ensuring assets that are transferred are free of liens and encumbrances, sales tax issues, etc.

However, for e-commerce M&As, there is another layer of due diligence required because the business is largely online. For example, if the acquisition e-commerce business operates a website, state and federal laws require effective cybersecurity procedures and protocols. Aside from verifying such procedures and protocols, due diligence will need to review whether that has been an actual or attempted intrusion that led to unauthorized access to the system network, resulting in loss of data and/or business information. As another example, there are many state laws now regulating consumer privacy, the sale/sharing of personal information/data, etc. Thus, e-commerce M&A due diligence will need to review the acquisition’s data collection, storage, use, sharing/selling, etc. A few other examples include:

• Review of compliance with terms and conditions of any online platform — like Amazon — used by the e-commerce business to be acquired
• Review of social media accounts
• Checking business credit ratings and the terminated merchant file/Match list
• Registration of domain names
• And more

Contact the E-commerce M&A Lawyers at Revision Legal

For more information, contact the experienced e-commerce M&A Attorneys at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.