Asset Sale vs. Stock Sale: Which is Best for Small Business Acquisition?

by Corey Philip //  April 12, 2023

Acquiring a business is a big deal, and doing so in the best way possible will take a few considerations. You can either obtain a small business as an asset sale or stock sale, with no in-between options, so depending on your company structure and goals, one acquisition method might be better than the other.

Asset sales are best for small business acquisitions from a buyer's point of view due to favorable tax implications, fewer liabilities, and more freedom in structuring the new company. However, buying a small business can sometimes work better with a stock sale.

Understanding the ins and outs of asset and stock sales will help you determine which is best for acquiring a small business based on your circumstances. Whether you own a holding company or this is your first business acquisition, knowing what asset and stock sales entail will empower you to make an informed decision.

Acquiring a Small Business via Asset Sale vs. Stock Sale

Buying a small business as an asset sale means purchasing some or all individual physical and intangible business contents, like equipment, fixtures, leaseholds, inventory, customer information, trade secrets, and other company assets. You can choose which parts of the business you'd like to buy and reach an agreement with the seller.

Stock sales are also known as equity sales, meaning you purchase the business as it exists in the form of shares. You'll acquire some or all ownership of the business, including the structure, employees, assets, and anything attributing to the already established business.


As a buyer, asset sales are more flexible as you can negotiate with the small business about what assets you'd like to purchase and which ones would prefer to leave out. You must follow legal processes and plenty of paperwork when transferring leases, permits, contracts, and copyrights. Asset sales will take longer to process as the negotiation needs to be reviewed and processed.

Stock sales are more straightforward for both sellers and buyers as the small business is its own entity with all assets included, and acquiring it through a stock sale means you purchase equity, whether that may be partial or entire ownership. There will be less negotiation time and no unforeseen paperwork.

Company Structure

Asset sales are not restricted to an entity type. Obtaining assets from any sole proprietorship, Limited Liability Company or partnership company is easy, which is why most small businesses are best acquired through asset sales.

Stock sales work best for incorporated businesses, including C and S Corporations, with transferable shares. You will acquire equity through membership or partnership interests if you need to purchase a stock sale for sole proprietorships, partnerships, and Limited Liability Companies.


Stock sales entail purchasing all assets and liabilities, including debt obligations, lawsuits, tax penalties, and pending reimbursements. In an asset sale, all business liabilities remain with the seller and do not transfer over, which is preferable for buyers. Asset sales mean the seller must ensure that they pay off any obligations attributed to the business.

Tax Implications

Asset sales are heavy on tax implications for the seller, as each physical asset includes income tax rates, and intangible assets involve a capital gains rate. C Corporations apply an even higher tax rate in asset sales as the business needs to pay corporate taxes and personal income levies, followed by funds due to shareholders. Asset stock buyers may qualify for tax deductions.

Stock sales are better for the seller as the lower capital gains rate is lower and may even qualify for tax exemption. C Corporation Qualified Small Business Stock can even be 100% tax-exempt for stock sales profits after five years of ownership.

Buyer's Viewpoint

IRS guidelines state that asset sales enable buyers to evaluate the business's depreciable assets to gain additional tax benefits, while stock sales void this benefit. Asset sales also prevent the buyer from any liabilities from the previous company, which may be undisclosed when purchasing a stock sale.

Acquiring certain assets in an asset sale is more difficult due to assignability issues, legal ownership, and third-party consent. You're better off with a stock sale if you purchase a small business with many copyrights, patents, or big government or corporate contracts.

Seller's Viewpoint

Sellers face a considerable tax disadvantage with asset sales, especially C corporations. Sellers also must deal with a more extended negotiation period with asset sales before they reach an agreement. It is easier to liquidize a business with asset sales if it is small, despite stock sales being more beneficial.

Structuring a Holding Company for Acquiring a Small Business

If you are a holding company looking to acquire a small business, your best option is an asset sale because there is no risk of carrying over unwanted liability.

However, if the small business has patents, copyrights, and huge contracts that would otherwise be difficult to carry over in an asset sale, you might benefit more from a stock sale.

If you plan on keeping the small business for an extended period, the parent would be best structured as an S Corporation with LLC subsidiaries. If you plan on selling, then you could benefit more from a C Corporation structure to take advantage of the QSBS exemption.

Pros and Cons of Purchasing Asset Sales vs. Stock Sales

From a buyer's point of view, the best small business acquisition is most likely, and more commonly, an asset sale, but stock sales do have their purposes. This brief asset and stock sale overview will pinpoint you in the right direction.

Asset sale pros:

  • Tax breaks on depreciated assets.
  • The purchaser does not take over potential liabilities.
  • Assets purchased by the buyer get valued as of the date it is acquired.
  • Retaining the seller's employees is not obligated, but it is still an option.
  • You don't need to purchase all the assets but keep to the profitable ones.
  • Not all owners of the small business being sold need to agree to sell, as the majority rules.

Asset sale cons:

  • It takes longer to close the sale.
  • You must set up your own business with the newly acquired assets.
  • It could be more expensive to purchase an asset sale than a stock sale.

Stock sale pros:

  • You don't need new licenses and permits.
  • You'll require less operating capital as the business is already established.
  • You acquire intellectual property with little paperwork and legal processes.
  • You take on the full business with existing customers, licenses, contracts, equipment, operating systems, etc.

Stock sale cons:

  • You will get all assets, even the ones you don't want.
  • You don't get the same tax benefits as an asset purchase.
  • You might inherit undisclosed bad debt, lawsuits, and any other company liabilities.

Final Thoughts

If you have the choice between an asset or stock sale when acquiring a small business, your best option is an asset sale. Asset sales have more benefits than stock sales, including freedom from any previous liability.

If the small business has significant government or corporate contracts, many copyrights, and permits, you will benefit more from a stock sale. (Related article: What is Asset-Based Lending for Small Businesses?)

About the author

Corey Philip

Corey Philip is a small business owner / investor with a focus on home service businesses.

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