Share Deal with Same Tax Benefits as Asset Deal?

April 25, 2024

by a searcher from Brigham Young University in Salt Lake City, UT, USA

Hi there,

I have agreement on an LOI to acquire a financial services business (an LLC) using SBA debt and would like for one minority shareholder (c.5%) to retain his/her stake going forward.

My current understanding is this would require a share deal under SBA rules. In a share deal, however, I wouldn't create the goodwill I could amortize over 15 years.

For corporations I know there is a way to treat a share deal as an asset deal (338(h)(10) election), but does anybody have experience/knowledge about a similar structure for LLCs?

Any recommendation for a good SBA tax accountant would also be greatly appreciated.

Thank you.

Reply by a professional
from Harvard University in Lynbrook, NY 11563, USA

There's not enough information here to respond. What is the tax status of the LLC? If it's a single member LLC or a partnership, you will (in all probability) be treated as acquiring the assets (may need to make a 754 election for a partnership). If it's an LLC S corp, you can make a 336e election just like if it were a corp S corp. If it's an LLC C corp (pretty rare), you may be able to make 338 elections if the buyer is an S or C corp, though seller may need to be a corp too depending on which kind of election we're discussing.

If you tell us what the tax status of the entity is, we can better respond to the question.

Happy to discuss. redacted

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi anon, yes, you have to do a stock purchase, and it's the same election for corporations and LLCs. Depending on the circumstances, you may want to make an election under either 338(h)(10) or 336(e). We are currently advising a client on an SBA deal involving a 10% roll over and a 336(e) election. Happy to discuss our experiences, if helpful. Reach out here or by email at redacted

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