The Basic Difference
In an asset sale the buyer picks the pieces it wants, such as equipment, inventory, customer lists, the name and goodwill, and leaves the legal entity with the seller.
In a stock sale or an LLC interest sale, the buyer takes the whole company, history and all.
Smaller deals, up to a couple of million dollars, are usually asset sales. Larger deals with several owners and many contracts lean toward selling the shares.
Why Buyers Prefer Assets
Buyers like assets because they leave old liabilities behind. Unknown lawsuits, tax problems and employee claims stay with the entity the seller keeps. Buyers can also write up equipment to its purchase price and depreciate it, which lowers their taxes.
That is why most small company buyers ask for an asset deal and lenders often require it.
What Sellers Weigh
Sellers often prefer a stock sale, because the proceeds are usually taxed as one capital gain. In an asset sale the price is divided among equipment, inventory, goodwill and other categories, and some of it can be taxed at higher ordinary rates.
The split is a negotiation. Your CPA should model it before you sign a letter of intent, because the same price can leave you with different amounts.
Entity Type Matters
A C corporation can face two layers of tax in an asset sale. An S corporation or LLC taxed as a partnership usually passes the gain through to its owners.
Some C corporation shares may qualify for special tax treatment on a stock sale, but only in narrow cases, so ask your adviser early.
Contracts, Licenses and Employees
- In an asset sale, contracts and leases need the other party's consent to move
- Permits and licenses often must be reissued to the buyer
- Employees are terminated by the seller and rehired by the buyer
- In a stock sale, most of this stays in place
A lease with a landlord who will not consent can block an asset deal. A license that cannot move can push a buyer toward buying the shares.
Nebraska Filings That Follow
After an asset sale the buyer registers for its own tax accounts and the seller closes out. See the pages on the sales tax permit for the buyer and articles of dissolution.
In either structure the buyer should handle successor tax liability before closing.
Price Allocation
In an asset sale the buyer and seller both report how the price was divided, and they should agree. A mismatch invites questions from the IRS. Ask for the allocation schedule early in the negotiation, not after the parties have shaken hands.
How to Decide
Start with what the buyer's lender will accept, then compare the after tax result for each structure.
If the difference is large, you can ask for a higher price in the structure that costs you more. Pairing the choice with seller financing terms can also move the number.
This page is general information, not tax or legal advice. Confirm your choice with your CPA and attorney. To see what your company might bring, ask for a confidential estimate.