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Buying a Business? Why Many Buyers Prefer Asset Sales Over Stock Sales

If you're in the process of buying a business, you've come across plenty of articles outlining the difference between an asset sale and a stock sale.

They usually give you the high-level stuff:

• Stock Sale: Buyer purchases the legal entity (LLC, Inc., etc.) itself.
• Asset Sale: Buyer forms their own entity, assets of the business are transferred into it, and the seller's legal entity still exists.

This is the part you already know. Useful, true, but surface-level.

Let's go deeper. Because once real money is involved, the structure doesn't just impact taxes… it affects liability, operations, paperwork, negotiations, and how you walk away after closing.

Why So Many Deals Default to Asset Sales

In the majority of small-to-mid market transactions (especially deals under $10M), the buyer and their team will almost always push for an asset sale.

Why?

1. Liability Protection

With an asset sale, you aren't inheriting the skeletons sitting inside the seller's entity.

• Old lawsuits?
• Back taxes?
• Unpaid vendors?
• Employment disputes?

All of that stays with the seller's legal entity. You start with a clean slate.

Example: You're buying a digital marketing agency. Business looks great on paper. But three years ago, the seller got hit with an employee lawsuit. The lawsuit got settled. But what if someone reopens it? If you buy the stock, you own that headache. If you buy the assets? Not so much.

This is why buyers prefer asset deals. You get the business with less risk of inheriting skeletons.

2. Fresh Balance Sheet

You're starting with new books. You're not responsible for the debts, credit lines, or financial history attached to the seller's LLC or corporation.

Example: A seller took out a $200K SBA loan to fund expansion. If you do a stock sale, you may inherit that liability. In an asset sale, the seller pays off the debt at closing before it formally changes hands. You start clean.

3. Tax Benefits: The "Step-Up" in Basis

In an asset sale, you can allocate the purchase price across the different assets you're acquiring: things like equipment, IP, goodwill, and non-competes — and start depreciating those amounts for tax savings. This can create meaningful tax advantages for years to come.

In an asset sale, you allocate purchase price across:

• Equipment
• Software/IP
• Contracts
• Goodwill
• Non-competes

Example: You buy a business via asset sale for $1M. $600K gets allocated to goodwill, $200K to IP, $200K to equipment. You now depreciate those assets, reducing your taxable income. In a stock sale? No such reset, you inherit fully depreciated assets.

What Actually Happens in an Asset Sale (Buyer POV)

This is the part that most articles skip over.

You form a new LLC (or corporation).

• You don't take over the seller's legal entity.
• Instead, the seller transfers the assets over: the domain name, website, contracts (where assignable), customer lists, vendor agreements, software, equipment, trademarks, etc.
• All of that is retitled to your new entity.
• You open new bank accounts, merchant accounts, payroll systems, etc.

The seller keeps their LLC.

• Their legal entity still exists post-closing.
• The seller will typically clear out the LLC's bank accounts, pay off any outstanding debts, file final tax returns, and then formally dissolve or wind down the entity on their own timeline.

In short: You get the business. The seller keeps the shell.

The Misconception: "Asset Sale Means Buying for Parts"

A lot of people hear "asset sale" and assume that only applies to companies being liquidated — fire sales where buyers just want the equipment and inventory.

That's wrong.

Even healthy, profitable companies often sell via asset sale. In fact, most digital businesses, agencies, service companies, SaaS platforms, and e-commerce stores are sold this way — not because the business is failing, but because of liability and tax considerations.

You're not just buying parts. You're buying the operation, just not the legal wrapper.

Example: You're buying a profitable e-commerce brand doing $3M in revenue. You want the supplier relationships, the customer list, the Shopify store, the social handles, the warehouse lease, all of it.

You structure it as an asset sale. Why? Because you don't want to inherit their PPP loan disputes, their tax issues, or that termination lawsuit from 2022.

When You Might Actually Want a Stock Sale

While asset sales heavily favor buyers, there are situations where a stock deal might make sense for you:

• Simplicity: Stock sales can avoid the need to assign contracts, renegotiate leases, or transfer vendor accounts.
• Licenses & Permits: In some industries (medical, government contracting, regulated services), licenses may not transfer cleanly in an asset sale.
• Key Contracts with Change of Control Clauses: Certain contracts may terminate automatically if ownership changes — but may stay intact if the legal entity remains the same.

Bottom Line for Buyers

Don't rely on the oversimplified definitions you see online. Deal structure is one of the most financially important decisions in any transaction, not just a technicality.

Ultimately, the structure is part of the negotiation. And in most Main Street and lower middle market deals, asset sales remain the default starting point, especially if lenders like SBA financing are involved.

But before you sign anything, make sure you fully understand:

• The tax impact
• The liability exposure
• How your contracts, licenses, and customers are affected
• What your legal entity looks like post-sale

Because once the structure is agreed to, everything flows downstream from that choice.

Make sure you're on the same page with a lawyer who understands the nuances but also doesn't overcomplicate it for your deal size.

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