What Is an Acquisition?
An acquisition is when one company buys another, either by purchasing its shares or its assets, usually giving the owners cash, stock or both.
How it works
In a share purchase, the buyer acquires the company's stock from its owners. In an asset purchase, the buyer picks the assets, such as technology, customers and contracts, and leaves the legal shell behind. Payment can be cash, buyer stock, or a mix, and part of it may be held back or tied to later performance, known as an earn-out.
The buyer does due diligence first, checking financials, contracts, ownership of intellectual property and legal risks. Deal structure has major tax effects, so involve a lawyer and an accountant.
Example
For example, a company is bought for $12,000,000. Investors hold preferred stock with a 1x liquidation preference on $3,000,000 invested, so they receive their $3,000,000 first. The remaining $9,000,000 is shared among owners by percentage. A founder with 40 percent of the common might receive about $3,600,000, before fees and taxes, in this simplified case.
Why founders care
Acquisition is the most common way a startup founder gets paid. Clean ownership of intellectual property, tidy contracts and a clear cap table make a sale smoother and may raise the price. An acquirer may also want founders to stay on, often with vesting-like retention terms.
Common mistakes
- Not having signed IP assignments from every founder and contractor.
- Focusing on headline price and ignoring escrow, earn-outs and taxes.
- Negotiating without a lawyer experienced in company sales.
Frequently asked questions
What is the difference between an acquisition and a merger?
In an acquisition one company buys another. In a merger two companies combine into one. In practice the terms blur, and the legal structure determines who owns what afterward.
What is an acqui-hire?
It is a purchase mainly to hire the team, often with little value placed on the product. Investors may recover less than they put in. Terms vary by deal.
Related terms
Go deeper
- IP Due Diligence for Startups Before Fundraising IP guideIP due diligence for startups: what investors ask about IP, a practical checklist, and why founder IP assignment should come before funding.
- IP Assignment Agreements for Startups Explained IP guideIP assignment agreement basics for startups: founder IP assignment, invention assignment for employees, contractor IP ownership and what to include.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.