Two Structures, Very Different Outcomes
Every business acquisition requires choosing between an asset purchase and a stock purchase. This decision affects taxes, liability, contract continuity, and employee transitions. The IRS treats each structure differently.
| Factor | Asset Purchase | Stock Purchase |
|---|---|---|
| Liability Exposure | Exclude known liabilities | Inherit ALL liabilities |
| Tax Basis | Stepped-up (buyer benefit) | No step-up |
| Contract Continuity | Assignment required | Contracts transfer intact |
| Employee Transition | New offers required | Employees remain |
| Complexity | Moderate | Lower |
| Seller Tax Treatment | Mixed (ordinary + capital) | Capital gains |
The Verdict
Asset purchases generally favor buyers (liability exclusion, tax basis step-up). Stock purchases favor sellers (capital gains treatment) and situations where key contracts have anti-assignment provisions. See Asset Purchase Agreements Guide.
For the complete acquisition framework, see The Strategic Guide to Buying Another Business.
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Lee Clark
Licensed ID & CA. Arbitrator, Judge Pro Tem, mediator since 2008.
Conor Meyers
CEO/GC of ACE Building Envelope Design. CLO of ZEA Biosciences.