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Asset Sale or Stock Sale and What Each Means for the Seller

Two sales at the same price can leave you with different amounts, and Georgia Business Brokers Match sees owners learn that late.

Structure is worth understanding before you sign anything.

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In short

  1. Most small business sales are asset sales, where the buyer takes chosen assets and goodwill.
  2. A stock sale passes the whole company, including its history, to the buyer.
  3. Structure changes taxes, contracts, licenses and who files what.
  4. Ask your CPA and attorney before you accept a letter of intent.

The Basic Difference

In an asset sale the buyer picks up the equipment, customer lists, name and goodwill, and leaves the company behind. In a stock sale the buyer takes the company itself, with everything it owes and everything it has ever done.

Most deals under a couple of million dollars are asset sales. Larger deals, with several owners, more often use stock sales.

Why Buyers Prefer Assets

Buyers can choose what to take and avoid unknown debts and claims. They also receive a fresh basis in the assets for tax purposes, which can mean larger deductions after closing.

That preference is why you should expect an asset offer unless your company is large or owned by several holders.

What It Means for You

You usually keep your cash, your receivables for completed work and your entity. You also pay off business debts at closing, a structure often called cash free and debt free.

Tax treatment differs by asset type, and the way price is split matters. Read how the purchase price is allocated.

Contracts, Licenses and People

An asset deal may require consent from landlords and vendors to move contracts. Licenses often need new applications. See occupation tax certificate does not transfer.

Employees get offers from the buyer rather than moving over automatically. In a stock sale, they usually stay as they are.

When a Stock Sale Makes Sense

Stock sales are easier when a business holds licenses or contracts that are hard to move. They also come up when the seller wants to avoid a double layer of tax, which depends on the entity type.

Ask your CPA how your entity is taxed. Entity type and structure together decide what you keep.

Next Step

Bring the question to your first broker call. Request your valuation to start, and keep your CPA close.

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