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Article Date:
March 2016

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Selling Your Business: Sell Corporate Stock as an Asset Sale

If you are selling your S or C corporation, the buyer may insist on buying your company’s assets as opposed to buying your company’s stock.


The straight asset purchase generally protects the buyer from exposure to unknown or contingent business-related liabilities.


In contrast, the buyer’s acquisition of your corporate stock ownership generally brings the corporate liabilities along for the ride, including those liabilities that no one knew about at the time of the sale.


Besides the liabilities, buyers also typically prefer asset purchases for tax reasons. That’s because the buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price.1 The step-up in basis yields higher depreciation and amortization deductions for depreciable and amortizable assets and lowers taxes when selling assets such as inventory.


But asset purchases also have some negative considerations for buyers. For example, if your corporation owns many assets, the buyer has to spend time and money to transfer legal titles to each one.


Your corporation also might have valuable nontransferable assets—such as favorable building leases, licenses, and customer contracts. With an asset purchase, the buyer might find it difficult or impossible to obtain legal ownership of these assets, and that could be a deal breaker.


In contrast, the buyer can eliminate the ownership problem by buying your corporate stock. Title to the company’s assets would come under the buyer’s control with no muss and no fuss—because in the stock purchase the buyer owns the company and the company owns the assets.


Now, let’s put all this in the same mixing bowl. What if the buyer could buy your stock and treat the stock purchase as a purchase of the corporate assets? And what if you could treat the purchase of the assets as a sale of your stock? In this scenario, both you and the buyer would get the best of all worlds. And all this is possible, as we explain in this article. ... Log in to view full article.

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