How are you handling sellers who insist on a stock sale for QSBS reasons?

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May 08, 2026

by a searcher from Carnegie Mellon University in Denver, CO, USA

Running into a situation where the seller's C corp qualifies for Section###-###-#### QSBS) and they're pushing hard for a stock sale to capture the gain exclusion. Totally understand the math on their side, potentially millions in tax savings. But as the buyer, I'd much rather do an asset purchase for the usual reasons: stepped-up basis, no inherited liabilities, cleaner diligence. For this deal specifically, there is a pending litigation and that is already a red flag for a stock sale. For those who've been here before: - How did you bridge the gap? Did you gross up the price, or hold firm on structure? - How do you think about the rep & warranty insurance angle when you're forced into a stock deal? - Any creative structures (F-reorg, hybrid) that actually worked in a search fund context? Would love to hear stories or frameworks you've used. Thank you in advance.
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Reply by an intermediary
from Duke University in Denver, CO, USA
With the potential for pending litigation, I would recommend on not going with a stock sale. F-reorg will still make it a stock sale for legal purposes, but an asset sale for tax purposes, so that does not solve your challenge here. Rep & warranty is a tool to use, but I also like the idea if you end up going with a stock sale, to push for a large amount in Escrow that more than covers the potential pending litigation. Give yourself a lot of buffer here. (Not legal advice, definitely talk with a lawyer further on this)
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Reply by an investor
from Harvard University in Santa Fe, NM, USA
I think you're stuck with a stock purchase. The gap is too big to gross up, probably. RWI won't cover the pending litigation - you'll need an indemnity from the seller. Try to assess the likely range of worst case scenarios for a litigation settlement and have the seller leave money behind in an escrow account to cover that.
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