Entity Structure

The legal form you chose when you incorporated — S-corp, C-corp, LLC, or partnership — determines the deal you can make at exit. Entity structure controls whether the transaction is an asset sale or a stock sale, which determines the tax treatment for both buyer and seller. For a deal of mid-market size, the difference between those two outcomes can be $2–3M in net-to-seller. Buyers generally prefer asset sales because they get a step-up in basis on the acquired assets. Sellers generally prefer stock sales because the proceeds are taxed at capital gains rates on the full amount. Who wins depends on leverage — and one of the biggest sources of leverage is how clean the corporate structure is. A buyer looking at unclear ownership history, undocumented equity transfers, or informal share issuances will insist on an asset sale to insulate themselves from unknown liabilities. A buyer looking at clean records may agree to a stock sale. The cleanup is the leverage.