What is an Asset Sale versus a Stock Sale?

If you’re thinking of buying or selling a business, you may be wondering about the difference between an asset or a stock sale. Determining the type of sale for selling your business is extremely important. An asset sale purchases a specific detailed list of business assets and liabilities. A stock sale requires buying the owners’ share of stock in the company and normally happens in an acquisition or merger with another corporation rather than an individual sale. Choosing between an asset sale or a stock sale can be complicated because buyers usually prefer asset sales, while sellers favor stock sales. It all boils down to taxes and liabilities.

DealStats database reports that approximately 30% of all transactions are stock sales. This statistic varies drastically by company size. Smaller transactions are more often asset sales. The vast majority (98%) of Rocky Mountain Business Advisor transactions are asset sales for individual owners of small to medium size businesses, in the $1,000,000 to $25,000,000 range. All assets of the business are assigned values, not just “hard” assets. This means everything that the company owns, including:

  • Name, trade names, and proprietary information
  • Leaseholds and licenses
  • Websites and social media accounts
  • Telephone numbers
  • Physical assets like equipment and fixtures
  • Net working capital such as accounts receivable, accounts payable, accrued expenses, inventory, and prepaid expenses
  • Intangible values like goodwill, impacting the sales price

If a business is a sole proprietorship, a partnership, or a limited liability company (LLC), these entities have no stock and must choose an asset sale. If the business is incorporated, as a C corporation or S corporation, the buyer and seller can decide whether the transaction will be an asset sale or a stock sale. The determination of which type of sale should always include the advice of each party’s CPA due to the tax implications.

If the buyer and seller agree to an asset sale, the business stock will NOT be part of the transaction. The buyer will set up their own tax ID associated with their desired business entity type (Sole Proprietorship, Partnership, LLC, or S Corp) and are NOT buying the existing Tax ID (TIN or EIN). The buyer also does NOT assume any of the business’s liabilities or any past or future legal claims – those stay with the seller.

The seller still has ownership of the legal entity, and the buyer purchases individual assets of the company. Since asset sales generally don’t include cash and the seller typically maintains the long-term debt obligations, this is often referred to as a cash-free, debt-free transaction.

Asset Sales for Small and Medium Businesses

Asset sales allow buyers to allocate a higher value to the company’s assets that depreciate quickly, like equipment, and lower values on assets that amortize gradually, such as goodwill. This creates additional tax benefits and improves the company’s cash flow during the first few critical years. Buyers also avoid inheriting potential liabilities, such as contract disputes, employee lawsuits, product liability, and product warranty issues.

The seller has flexibility in evaluating individual assets for favorable capital gain tax rates after the sale. Everything is negotiable. And there are numerous ways to reinvest gains to avoid negative tax consequences. Innovative business advisors let you strategize for the best possible scenario.


Asset sales can be a problem for buyers of larger companies with certain assets involving legal ownership and third-party consents, such as contracts, intellectual property, leases, and permits.

For sellers of corporations, asset sales generate higher taxes depending on the ratio of capital gains rates and ordinary income tax rates. The current federal rate is 20%, state rates vary, and the seller’s tax bracket dictates ordinary income rates.

  • C-corporation sellers faces double taxation, first taxed on the sale of assets and again when the proceeds are transferred to the new owner.
  • S-corporation (formerly a C-corporation) could trigger corporate-level built-in gain (BIG) taxes, under IRS Sec. 1374.

Stock Sales for Corporations

In a stock sale, the buyer purchases the company stock directly to obtain the legal entity’s ownership. The buyer can ask to have specific assets and liabilities dispersed or paid off before the sale. Stock sales do not require the tedious separation of individual assets into categories because all are titled within the corporation.

If the business has a large number of copyrights, patents, or government or corporate contracts to assign, a stock sale may be the better option because the corporation maintains ownership as well as liabilities. Also, the buyer reduces the risk of losing large contracts the company may be dependent on.

Sellers may prefer stock sales because the profits are taxed at a lower capital gains rate, and they avoid corporate level taxes. Sellers are usually less responsible for future liabilities, including pensions and benefit plans. However, the buyer can negotiate a shift in responsibilities back to a seller.

What’s the Downside?

With stock sales, buyers can’t increase the value of certain depreciable assets. The tax basis is set at book value at the time of the sale for the new owner. This can result in higher future taxes for the buyer than an asset sale. They may also accept unknown contingent risk by purchasing the company’s stock, such as employee issues, environmental concerns, future lawsuits, OSHA violations, and other liabilities. Negotiations can be mitigated through legal representations, warranties, and indemnifications.

Business transactions can have major consequences on the future for both the buyer and seller, depending on the company’s structure and industry. Both parties need to consult with innovative business advisors or brokers, legal counsel, and accountants early in the process to anticipate the issues and make informed decisions that will produce the best outcome. Contact us today to learn more about how to sell your business!

Rocky Mountain Business Advisors is a business brokerage focused 100% on selling our clients’ business. As Business Brokers, we fathom it as our responsibility to apply a proven process to educate, prepare, and guide our clients through the sales process so that they can focus on managing their business while we focus on a successful sale. We bring a strong sense of urgency and tenacity to every engagement to realize the highest sales price in the shortest period of time. We bring buyers and sellers together. Contact us at 303-474-5582https://rockymountainba.com/ , or schedule a free 15-minute consultation to learn more about the services that makes us one of the best business brokers in Denver.