Understanding Asset vs. Stock Sales


By Axial

For business owners looking to divest their current interest in a company, there are two main ways to do this — pursue an asset sale or a stock sale. Deciding what is most beneficial requires the evaluation of several factors. For starters, the tax implications and liabilities that come along with asset vs. stock sales could weigh more significantly on either buyer or seller. Here are the basic pros and cons of each strategy:

Asset Sales

In an asset sale, the seller retains ownership of the original legal entity and the buyer purchases the individual assets of the seller one by one. This can include equipment, inventory, lease agreements, licenses and trade secrets. After the closing, the buyer and seller retain separate corporate existence and structure, while the owner of the operating assets changes.


In asset sales, buyers have the ability to pick and choose the specific items and or rights they want to own.

In addition, asset sales provide tax advantages to the buyer, because acquiring assets in this manner allows the purchaser to step up the company’s depreciable basis in the assets. More or less, engaging in such transactions will grant the buyer a larger number of deductions they can use in the long run to offset the buying company’s income.


While asset sales provide numerous benefits for buyers, the case may not be the same for sellers, which often end up with less favorable tax treatment by selling individual assets instead of stock.

While divesting intangible assets – such as goodwill – generates capital gains tax liability, selling more tangible assets can incur higher ordinary income tax rates.

In addition, if a business owner divests his stake in a C corporation through an asset sale, he will face double taxation, as selling the assets will incur tax liability and then transferring the assets outside the legal entity will once again produce taxes.

Business owners should also keep in mind that selling certain assets – such as licenses and contracts that hold notable value – may require obtaining third party consents to assign such licenses and contracts. Acquiring such agreements can take significant effort and time.

Stock sales

During a stock sale, the buyer purchases the stock of the company directly from the selling shareholders. By doing so, the acquirer comes to own all the assets, liabilities and rights of the entity being purchased.

While this type of transaction is inherently different from an asset sale, it frequently results in the transfer of the same assets and liabilities. If a buyer does not want to have specific assets or liabilities after one of these sales, it can distribute or pay them off before the transaction.


Sellers often prefer stock sales to asset sales because the proceeds are taxed at a more favorable tax rate. C corporations taking this route also do not incur corporate income tax. From the counterparty’s perspective, buying a company all at once instead of one piece at a time can make it easier if the purchaser wants to continue operating the business acquired with little concern about interruption.

While a stock sale will likely be a bit simpler than an asset sale, the parties involved may still need to worry about either obtaining consents to the deal, as some contracts and licenses will come with a consent requirement. In other instances, they will contain a notification requirement.


Buyers will not receive beneficial tax treatment when participating in a stock sale, as purchasing a company in this way will not permit a buyer to enjoy the step up in basis they would as a result of taking part in an asset sale.

Picking a strategy

If business owners are thinking of selling their company outright or instead selling its assets one by one, they can benefit from carefully thinking about considerations such as what type of tax treatment they desire and also which liabilities they would prefer to have following closing.

Selecting the best possible method for selling a firm can have long-term repercussions for the company, and frequently plays a key role in whether the transaction itself is successful. The two sides should carefully consider the implications, and leverage this information to reach an outcome that benefits both parties.


Axial (www.axial.net) is an online network connecting professionals who run, advise, finance, and acquire middle market companies. Over 200 private companies weekly use Axial to confidentially initiate a financial transaction. CEOs and transaction professionals join Axial to access advice and capital, build strategic relationships, and exchange opportunities. Headquartered in New York, NY, Axial is backed by First Round, Redpoint Ventures and Comcast Ventures.