• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to secondary sidebar
  • Skip to footer

Scale FinanceScale Finance Logo, Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Charlotte · Raleigh – Durham · Chapel Hill · Triad · Southern Pines · Coastal Carolina
Closing the GAAP to Scale Your Business
The FINACA Logo
919-230-4667
Scale Finance, LLC, Financing, North Myrtle Beach, SC
  • Home
  • Services
    • CFO & Controller Services
    • Capital Raise Services
    • Business Valuations
    • Mergers & Acquisitions
    • Professional Consultations at No Cost
  • Professionals
    • Partners
    • Charlotte Team
    • Raleigh – Durham – Chapel Hill Team
    • Greensboro-Southern Pines
    • Coastal Carolina Team
  • Client Experience
    • Closed Capital Raise Transactions
    • Closed M&A Transactions
    • Client Endorsements
    • Information Technology
    • Healthcare, Biopharma & Medical Device
    • Services, Energy, Industrial
    • Consumer, Retail, Media
    • Real Estate
    • Private Equity Groups
  • Recent News
  • Knowledge Bank
    • Best Practices in Scaling Companies
    • Entrepreneurial Management Skill- Building
    • Financial Management
    • Mergers & Acquisitions
    • Regulatory Developments
    • Venture Capital
  • Contact Us
    • Charlotte
    • Raleigh – Durham – Chapel Hill
    • Triad – Southern Pines
    • Coastal Carolina
  • Joining Our Firm

Understanding Asset Sales Versus Stock Sales in Corporate M&A

Source: Axial Markets

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.

Benefits:

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.

Costs:

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.

Benefits:

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.

Costs:

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.

About Scale Finance
Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, and Myrtle Beach with a team of more than 40 professionals serving more than 100 companies throughout the region.

Primary Sidebar

Knowledge Bank

5 Rules for an A+ Board Meeting for Investor-backed Companies

Understanding & Using Your Cash Flow Statement

Why Business Valuations are Helpful (& What do they Typically Cost)?

Managing Merchant Fees – Role of Zero Fee Processing

Can Accountants Value a Business?

Personal Guarantees – Should You Grant One?

10 Pieces of Advice When Someone Wants to Buy Your Company

Convertible Note Financing – Payback Time

Due Diligence Fiasco – A Look Back at HP-Autonomy

Applying for Business Loans – Hard Credit Checks

7 Ways a Business Name Generator Can Help Entrepreneurs

Citizenship by Investment Overview

Understanding the True Cost of Employee Turnover

How to Think About Valuation When Raising Venture Capital

What it Takes to Shift to a Recurring Revenue Model in Hardware & Software

Differences Between Major SBA Loan Programs – SBA 7(a) vs. SBA 504

5 Reasons Entrepreneurs Don’t Get Funded (Which Are Not Their Fault)

Balancing Profitability Versus Growth

Bootstrapping Your SaaS Business – What’s Changing

Best Options for Small Company Loans

Explore the Knowledge Bank…

Secondary Sidebar

Recent News

SF Closes Acquisition of Midwest Outdoor Resorts for Travel Resorts of America

Scale Finance Advises FX HedgePool on $8M Series A Funding

Scale Finance Closes $7 Million Senior Debt Financing for Travel Resorts of America

Scale Finance Advises on Acquisition of Falcone Crawl Space & Structural Repair

Congrats to Payzer for Closing $23 Million Equity Financing

SF Client Headbands of Hope Closes Strategic Growth Investment

SF Assists Semper Investment Company in Acquisition of ACM Removal

SF Client SentryOne Acquired by SolarWinds (NYSE: SWI)

Scale Finance Assists GPM with Acquisition by Netsmart

SF Client Broadstep Behavioral Health Continues National Growth Through Acquisitions

SF Client Impact Financial Systems (IFS) Acquired by iPipeline

Scale Finance Assists TrueLearn with Investment by LLR Partners

Scale Finance Assists Textum Weaving with Investment by Quad-C

Scale Finance Closes Debt Financing for Horizon Eye Care

Scale Finance Closes Acquisition of Horsepower Site Services by MCG Civil

Scale Finance Closes Growth Financing for Celerity

Scale Finance Advises on Acquisition of Reliant Transport

More News…

Footer

Media

Scale Finance Managing Director Dave Gilroy interviewed on WSIC Radio (local Fox affiliate)

/wp-content/uploads/2014/02/David-Gilroy-Interview-Local-Biz-Now-2-7-14.mp3

Entrepreneurial Tips

  • Funding Tips from Scale Finance
  • CIE Life Sciences Panel Discussion
  • Why Use Fractional CFO Services

Sign Up—Finance Bulletin

Monthly insights into corporate finance for entrepreneurial companies

Sending

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

Return to top of page

Copyright © 2008–2023 Scale Finance, LLC
Securities and offering services through Charles Towne Securities, LLC. Members FINRA and SIPC.