When it’s time to sell your business, one of the biggest decisions you’ll make is how to structure the sale – whether to sell your stock (equity) or the assets of the business.
Buyers think in terms of taxes, liabilities, and continuity. Sellers think about certainty, simplicity, and net proceeds. The bridge between buyers and seller in this context is deal structure: stock or asset sale. The choice can generate or cost millions, here’s how to make the right call.
It’s a choice that goes far beyond paperwork – it affects tax treatment, transfer of liabilities, and post-closing flexibility, and ultimately, how much value you take home.
Let’s break down the differences, and how to choose the structure that gets you the best result.
Key Differences in Structure and Outcomes
| Factor | Asset Sale | Stock Sale |
| Ownership Transfer | Buyer acquires assets; seller retains entity | Buyer acquires entity (shares) |
| Liabilities | Buyer assumes only select liabilities | Buyer assumes all liabilities |
| Tax Treatment – Buyer | Can “step up” asset basis and claim higher depreciation/amortization | No step-up in basis; limited deductions |
| Tax Treatment – Seller | May face double taxation (corporate + individual level) for C-corps | Typically taxed once at capital gains rate |
| Complexity | More documentation (individual asset transfers, consents, lien releases) | Simpler execution (share transfer) |
| Continuity | New entity setup may disrupt contracts, licenses, employees | Greater continuity with minimal operational disruption |
| Generally Preferred By | Buyers | Sellers |
Tax Mechanics – Where the Real Differences Lie
- Stock Sale: Advantage to the sellerA C-corp sells for $10 million with a $6 million tax basis, resulting in a $4 million gain.
In a hypothetical asset sale example, the corporation first pays 21% federal corporate tax on the $4 million gain ($840,000), leaving $9.16 million. When that amount is later distributed to shareholders, it’s taxed again at the 20% capital-gains rate ($1.83 million). The combined tax burden is roughly $2.67 million, or an effective rate of about 67% on the gain.
In a stock sale, the same $4 million gain is taxed once at the 20% shareholder capital-gains rate, creating a total tax liability of $800,000. Result: the seller saves about $1.87 million in taxes by structuring the deal as a stock sale rather than an asset sale.
- Asset Sale: Advantage to the BuyerThe seller originally bought equipment for $400,000, claimed $300,000 in depreciation, and it’s now worth $250,000.In an asset purchase, the buyer gets a new $250,000 basis step-up equal to fair market value, allowing fresh depreciation deductions, no taxable gain if later sold at that value, and stronger after-tax cash flow.
In a stock purchase, the buyer inherits a $100,000 tax basis, limiting future depreciation and creating a $150,000 taxable gain if sold at fair market value.
Strategic Considerations for Sellers and Buyers
Contractual Obligations and Assignments
Contracts often dictate structure. In many cases, customer, vendor, or lease agreements can’t be transferred without consent, making an asset sale more complex. Each contract must be reviewed, renegotiated, or re-executed, which can delay closing or even trigger termination clauses. A stock sale, by contrast, keeps all contracts within the same legal entity – no need for reassignments or new approvals.
For Example:
A software firm with hundreds of customer subscriptions is far easier to sell through a stock deal, which keeps service agreements intact, avoiding the need to re-paper every client.
Negotiating Power and Value Sharing
Because each structure benefits one side differently, the negotiation often centers on sharing value – buyers may offer a price premium for an asset deal that enhances their tax efficiency, while sellers trade some control for faster closing and cleaner taxation under a stock sale. The key is modeling both routes upfront so pricing reflects real after-tax economics, not assumptions.
For Example:
In a competitive process, a seller who models both scenarios can show buyers how a modest price adjustment bridges the after-tax gap, leading to faster alignment and stronger offers.
How Entity Type Shapes Deal Structure
S-Corporations:
S-corps enjoy single-level taxation, meaning gains flow directly to shareholders without a corporate tax. In a stock sale, sellers typically pay long-term capital gains tax on the sale of their shares – a simple, tax-efficient exit. Buyers, however, don’t get a step-up in asset basis, limiting future depreciation. In an asset sale, S-corps face a higher tax bill since gains are recognized at the entity level before passing to shareholders, but buyers benefit from a basis step-up and can selectively assume assets and liabilities.
C-Corporations:
C-corps face double taxation on asset sales – first at the corporate level, then again when proceeds are distributed to shareholders. That’s why sellers almost always prefer stock sales, which trigger only one layer of shareholder tax. Buyers, on the other hand, often prefer asset sales for the basis step-up and the ability to avoid legacy liabilities. The challenge lies in balancing these competing priorities through pricing or creative structuring so both sides achieve fair after-tax value.
Hybrid and Creative Structures
In practice, many deals incorporate elements of both structures to balance tax efficiency and risk allocation. Examples include:
- Asset sale with stock consideration: Helps align incentives or defer tax.
- Section 338(h)(10) election (U.S. tax-specific): Allows a stock sale to be treated as an asset sale for tax purposes – often a win-win compromise.
- Carve-outs: Parent companies sell divisions via asset sales while retaining the parent entity.
Working closely with tax advisors and transaction counsel early in the process helps structure these hybrids to maximize total value.
Conclusion
Choosing between an asset and stock sale isn’t a legal formality – it’s a strategic decision that shapes your outcome. The right structure can add millions in value and help you close faster.
At Harney Capital, we help owners and investors maximize tax efficiency, anticipate tax and legal impacts, and structure deals that maximize after-tax proceeds and strategic alignment. There’s no one-size-fits-all answer – modeling both options early with qualified tax and legal advisors’ helps avoid surprises later.
If you’re preparing to sell – or buy – a business, let’s start a confidential conversation. Your exit deserves the structure that delivers maximum value.
