Asset Sale
A business acquisition structure where the buyer purchases specific assets of a company — rather than the company itself — leaving the legal entity and its liabilities with the seller.
What is an Asset Sale?
In an asset sale, the buyer acquires specific assets of the business — equipment, inventory, customer lists, intellectual property, contracts, and goodwill — rather than buying the company as a legal entity.
The original company continues to exist and retains all liabilities not specifically assumed by the buyer.
Asset Sale vs. Stock Sale
| | Asset Sale | Stock Sale | |---|---|---| | What transfers | Specific assets | All shares of the company | | Liabilities | Buyer chooses what to assume | All liabilities transfer | | Preferred by | Buyers | Sellers | | Tax treatment | Buyer gets stepped-up basis | Generally higher capital gains for seller | | Contracts | May require third-party consent | Usually transfer automatically |
Why Buyers Prefer Asset Sales
Step-up in tax basis. When a buyer acquires assets, they can depreciate the full purchase price — including goodwill — over time. This creates significant tax savings over the years following acquisition.
Liability protection. The buyer can choose which liabilities to assume and leave others (lawsuits, tax disputes, environmental issues) with the seller's entity.
Cleaner transaction. Easier to define exactly what you're buying.
Why Sellers Prefer Stock Sales
Tax efficiency. Sellers typically pay lower capital gains tax on a stock sale than the combination of corporate tax + capital gains that can arise from an asset sale.
Fewer complications. Contracts and licenses transfer automatically with the entity — no need to get third-party consent from customers or vendors.
In Practice
Most small business acquisitions are structured as asset sales because:
- Buyers want the liability protection
- Individual buyers (not corporations) buying small businesses don't have prior basis to step up anyway
- SBA loans are typically structured as asset acquisitions
Sellers can often negotiate a small price premium to compensate for the less favorable tax treatment in an asset sale.
What Gets Transferred in an Asset Sale
Typically included:
- Business name and trademarks
- Customer lists and contracts
- Equipment and inventory
- Goodwill (reputation, brand)
- Technology and software
- Lease (with landlord consent)
Typically NOT transferred:
- Cash (unless specified)
- Accounts receivable (often retained by seller)
- Liabilities not explicitly assumed
- The original corporate entity