Asset sale vs. stock sale

Definition

Buying the assets and leaving the liabilities, or buying the entity.

Why It Matters

The structure drives taxes, which liabilities you inherit, whether key contracts and licenses carry over, and whether you have to rehire everyone or simply inherit them, so it is worth real money to whichever side it favors. It also decides the paperwork a new owner spends the first week on. An asset purchase runs through a new entity, so it needs its own EIN from day one, while a stock purchase keeps the company's existing number and its filing history. The trade name is an asset like any other: an asset purchase carries it only where the agreement conveys it and the buyer registers it, and a stock purchase keeps the name because the company keeps itself. Name the structure in the LOI, not the closing week. Nearly every SBA-size deal is an asset purchase for the clean liabilities and the stepped-up basis, and a seller pushing for a stock sale is usually protecting something.

In numbers: Pay $1,500,000 for the assets and that price becomes your tax basis, written off over the years ahead: the equipment quickly, the goodwill over fifteen years. Buy the stock instead and nothing resets: the company keeps depreciating the $300,000 its equipment cost years ago, most of it already used up, and its old liabilities come along too. Those write-offs are why nearly every SBA-size deal papers as an asset purchase.