Selling your business
Selling Your Business: Stock Sale or Asset Sale?
The structure of a business sale decides what the buyer takes, what you keep, how the proceeds are taxed, and which liabilities follow you after closing. Sellers usually prefer a stock sale; buyers usually prefer an asset sale. Understanding why is the first step to negotiating a good deal.
What is a stock (or equity) sale?
In a stock sale, the buyer purchases your shares or LLC membership interests. The company itself does not change — its contracts, licenses, employees, bank accounts, and history, including its liabilities, all stay with the entity the buyer now owns. For sellers this is cleaner: the business transfers as a whole and proceeds are often taxed at capital gains rates.
What is an asset sale?
In an asset sale, the buyer purchases specific assets — equipment, inventory, customer lists, intellectual property, goodwill, and selected contracts — and leaves the rest behind. The seller's entity remains, along with liabilities the buyer did not expressly assume. Buyers like this because they choose what they take and get a stepped-up tax basis in the assets.
Tax consequences
Structure drives taxes. C-corporation asset sales can create double taxation. In asset sales, the allocation of price among asset classes (reported on IRS Form 8594) affects how much is capital gain versus ordinary income. S-corporation and LLC sellers have additional options, such as Section 338(h)(10) or 336(e) elections. New York sales tax can apply to tangible assets transferred in an asset sale, and bulk sale notification rules apply. Always coordinate with your CPA before signing a letter of intent.
Liability and indemnification
In a stock sale, the buyer inherits the company's past, so they will demand broad representations, warranties, indemnities, escrows, or holdbacks. In an asset sale, you keep the unassumed liabilities. Either way, negotiate survival periods, caps, baskets, and exclusive-remedy clauses carefully — these determine how much of the price you actually keep.
Consents, contracts, and licenses
Asset sales require assigning each contract, lease, and permit, and many require the counterparty's consent. Stock sales avoid most assignments but can trigger change-of-control clauses in leases, loan documents, franchise agreements, and customer contracts. Review these early; a landlord or key customer can hold up a closing.
Employees, non-competes, and transition
In an asset sale, employees are typically terminated by the seller and rehired by the buyer, which raises payroll, benefits, and WARN Act questions. Buyers will usually ask the owner for a non-compete, a non-solicit, and a transition or consulting agreement. Non-competes given in connection with the sale of a business are generally treated more favorably by New York courts than employee non-competes, but they must still be reasonable in scope and duration.
Earn-outs, seller notes, and getting paid
Not all of the price is always paid at closing. Earn-outs, seller financing, and rollover equity can bridge valuation gaps, but they shift risk to the seller. Define the metrics, accounting rules, reporting rights, security, and default remedies precisely — earn-out disputes are among the most common post-closing fights.
Thinking about selling? Talk through structure before you sign an LOI.
Flat-fee matter review. Straight answers, no runaround.