The decision whether to structure your sale as a transfer of assets or stocks is truly a tax issue. The short answer is that a stock sale is better for you, the seller, while the buyer benefits from an asset sale. But, since we’re talking about the IRS, there are infinite variations and complications.

Why would a seller prefer an asset sale?

In an asset sale, the seller retains legal ownership of the company but has no further recourse to the sold assets. The buyer assumes no liabilities in an asset sale. Typically, for reasons having to do with tax benefits, buyers prefer asset sales, whereas sellers prefer stock sales.

What happens to shareholders in an asset sale?

In an asset sale, assets to be sold need to be specified and duly transferred. Merger consideration is typically paid directly to stockholders, whereas in an asset sale you have to take the additional step of distributing the sale proceeds to the stockholders.

What is the difference between stock purchase and asset purchase?

What’s the Difference Between an Asset Purchase vs. Stock Purchase? In an asset purchase, the buyer agrees to purchase specific assets and liabilities. In a stock purchase, the buyer purchases the entire company, including all assets and liabilities.

Is there a buyer in a merger?

In a merger, two separate legal entities become one surviving entity. Often, buyers will wish to keep the target company as a separate legal entity for liability reasons, so the buyer will instead merge the target into a wholly-owned subsidiary corporation of the buyer, called a forward triangular merger.

Can you have goodwill in a stock purchase?

Asset Purchase vs Stock Purchase: Asset Advantages In a stock deal, with the acquirer buying shares of the target, goodwill cannot be deducted until the stock is later sold by the buyer. The buyer can dictate what, if any, liabilities it is going to assume in the transaction.

Is cash included in an asset sale?

Asset sales generally do not include cash and the seller typically retains the long-term debt obligations. This is commonly referred to as a cash-free, debt-free transaction. Normalized net working capital is also typically included in a sale.

What happens to assets in a merger?

In a merger, two separate legal entities become one surviving entity. All of the assets and liabilities of each are owned by the new surviving legal entity by operation of state law.

Can I depreciate goodwill?

Goodwill can be amortized over 10 years or less, in which case the impairment test is simplified in addition to being trigger-based. In 2016 the FASB launched a project to simplify goodwill impairment testing for all companies, while maintaining its usefulness.

What is an all stock transaction?

An all-cash, all-stock offer is a proposal by one company to purchase all of another company’s outstanding shares from its shareholders for cash. An all-cash, all-stock offer is one method by which an acquisition can be completed.