Asset Sale vs. Stock Sale

Every acquisition is structured as one of two types. In an asset sale, the buyer purchases specific assets and assumes specific liabilities — cherry-picking what they want and leaving the rest. In a stock sale, the buyer purchases the ownership interest in the entity, inheriting everything inside it — assets, liabilities, contracts, and history. The distinction matters enormously for taxes. In an asset sale, the buyer gets a step-up in basis on the acquired assets, which means higher depreciation deductions going forward. The seller often faces higher taxes because the proceeds get allocated across asset classes, some taxed at ordinary income rates. In a stock sale, the seller's proceeds are typically taxed entirely at capital gains rates — a lower rate. For a mid-market transaction, the gap between the two can be $2–3M in after-tax proceeds to the seller. Buyers push for asset sales. Sellers push for stock sales. The negotiation often comes down to whether the seller can provide clean enough corporate records and representations to make the buyer comfortable taking the entity as-is.