Stock vs asset sale in a low asset business

November 27, 2022

by a searcher from Utah State University - Jon M. Huntsman School of Business in South Jordan, UT, USA

Can anyone help me understand the impact of a stock sale vs an asset sale for a business valued at $4M that has assets of $500-750k from the perspective of a buyer? Since the majority is Goodwill, would there be any significant tax savings in an asset sale?

0 Likes

15 Replies

269 Views

Replies

Reply by a professional
from Walsh College of Accountancy and Business Administration in Detroit, MI, USA

Depends on the facts and there are too many to go through in a post like this. Here are the major drivers to a stock vs asset difference 1) Ordinary income (e.g., cash basis and recapture); 2) Section 1374 built-in gains taxes (if applicable); 3) State taxes at the entity level; 4) State taxes - Passthrough entity election, if available and if beneficial; 5) Transaction costs.

I am seeing a lot less gross up payments over the past 2 years as more and more states adopt passthrough entity tax regimes. This usually means the seller is better of selling assets than selling stock.

Reply by a searcher
in Alpharetta, GA, USA

One other major factor is whether the seller has significant contracts with business customers. My first deal started as an asset deal for the aforementioned reasons, but at a certain point I realized the risk of having to go to all the customers and asking them to sign new contracts with a new legal entity (and all the attendant questions that would raise) was greater than the risk of doing a stock deal and inheriting legacy liabilities. It depends what kind of business you are buying and who your customers are, and whether you have relevant experience in that industry or not.

+13 more replies.

Join the discussion