Selling your business: asset sale or equity sale?

They're taxed differently, buyers usually want one and sellers usually want the other, and the outcome is shaped by decisions made years earlier.

The difference

In an asset sale, the buyer purchases specific assets and generally chooses which liabilities to assume. In an equity sale, the buyer purchases your ownership interest and gets the company as it stands, liabilities included.

Why buyers prefer assets

They can usually step up their basis in the acquired assets, generating future depreciation. And they leave behind liabilities they didn't agree to take.

Why sellers usually prefer equity

Often simpler tax treatment on the seller's side, and a cleaner exit from the liabilities.

What actually decides it

Negotiation, and how your entity is structured. Some structures make one form of sale considerably more expensive. Some elections you made years ago constrain the options available now.

The part that gets decided early

The tax bill on a sale is largely determined before there's a buyer: how the entity was classified, how basis was built, what's sitting inside the entity, whether debt has been taken out against appreciated assets.

By the time diligence starts, your structure is what it is. Restructuring in the middle of a sale is possible but expensive, and it raises questions with buyers.

Payments over time

If part of the price arrives over years, installment treatment may be available and can spread the

tax. Whether it applies depends on what's being sold and how.

What to do

If a sale is anywhere on your horizon, even years out, look at the structure now while changes are still cheap and don't have to be explained to a buyer.

If you're already in discussions, get the tax analysis before signing a letter of intent. The letter often fixes the structure, and by then your options have narrowed. That analysis is business sale and purchase structuring.

This is general information, not legal advice for your situation. If you want an answer for your business, book a consultation.