Structure decides what you buy and what you owe.

In an asset purchase you take only what the schedules list and only the liabilities you expressly assume. In an equity purchase the entity arrives whole, known and unknown inside it. Asset deals usually buy you a fresh tax basis. Sometimes a worse one. Establish the target’s entity form before you propose a structure.

What actually changes when I buy assets instead of stock?

An asset purchase transfers named property. You take the equipment, the inventory, the customer list, the goodwill, and the contracts you assign, and only the liabilities the agreement says you assume. A stock purchase transfers ownership of the entity, which keeps its own contracts and every liability it ever incurred.

Apply it. A former employee sues eight months after closing over conduct two years earlier. Buy the equity and the defendant is the company you now own; what it costs you turns on the entity’s insurance, the indemnity you negotiated, and whether a holdback still holds money. Buy the assets and the defendant is the seller’s entity.

Consequence: in an equity purchase, diligence is most of your protection, because an individual seller’s indemnity is worth only what he can pay once the proceeds are spent. Representation and warranty insurance is common in larger sponsor deals; at this size it is uncommon. Do not plan around it.

One qualification. The asset structure reduces exposure; it does not eliminate it. Many states impose successor liability where the buyer is a mere continuation, where the deal is a de facto merger, or where creditors are left short. Some state tax statutes bind an asset buyer by operation of law, and federal environmental and labor doctrines reach asset buyers too.

How does an asset purchase change my taxes as the buyer?

An asset purchase gives you cost basis in what you bought. Section 1060 makes you and the seller allocate the price across seven asset classes by the residual method, and both of you report it on Form 8594. Goodwill then amortizes straight-line over fifteen years. Equipment can be written off far faster.

Two mechanics matter. Outside the residual class, no asset can be allocated more than its fair market value, so you cannot push price onto equipment because equipment writes off faster. And both sides file. Negotiate the allocation while you have leverage and sign it at closing.

• Goodwill, customer lists, the trade name, and a covenant not to compete are Section 197 intangibles. Fifteen years, straight line. A covenant taken in connection with acquiring an interest in a trade or business runs the full fifteen even if the covenant runs one.
• Qualifying tangible property acquired and placed in service after January 19, 2025 is eligible for 100 percent bonus depreciation under current law. Section 179 now carries a $2,500,000 limit with a $4,000,000 phase-out for property placed in service in taxable years beginning after December 31, 2024. Neither covers the building or property bought from a related party, and Section 179 is capped by your taxable business income.

Law: 26 U.S.C. 1060; 26 C.F.R. 1.1060-1(c); Instructions for Form 8594 (rev. Nov. 2021); 26 U.S.C. 197, 197(d)(1)(E), 168(k) and 179 (last two as amended by Pub. L. 119-21 (2025)); Recovery Group, Inc. v. Commissioner, T.C. Memo. 2010-76, aff’d, 652 F.3d 122 (1st Cir. 2011).

There is a trap if the seller stays in. The anti-churning rule can deny Section 197 amortization where buyer and seller are related after the deal, tested at more than twenty percent. It reaches only intangibles the seller or a related person held during the statutory 1991 to 1993 window, so it bites older businesses, not later goodwill.

Law: 26 U.S.C. 197(f)(9); 26 C.F.R. 1.197-2(h).

Now the equity side. Buy the stock of a corporation and your cost is basis in the stock. Not the equipment. Not the goodwill. The corporation keeps the basis it had, and you deduct nothing more until you sell.

Corporate stock hands you basis you cannot use until the day you leave.

Two exceptions matter here. Buy all the interests in an LLC or partnership and the purchase is generally treated as buying the assets, stepped up, no election needed. With a corporate target, an election can sometimes have the equity purchase taxed as an asset purchase, depending on the target’s status, your acquisition entity, and the seller signing.

Law: Rev. Rul. 99-6; 26 U.S.C. 338(h)(10), 336(e), 743(b), 754.

When is a stock purchase actually the better tax answer for me?

A stock purchase beats an asset purchase on tax when the target’s existing tax basis in its assets is higher than the price you are paying. In a stock deal the entity keeps that basis and keeps depreciating it. In an asset deal your basis resets to what you paid, and a reset down costs you deductions.

The buyer preference for assets is a default, not a rule.

• The target bought its own business in an asset deal a few years ago and is still amortizing a large goodwill balance. Buy the stock and it keeps running.
• It replaced a fleet recently, earnings have since softened, and your price sits below the tax basis of what is inside.

The opposite pattern is more common. A company that aggressively expensed its equipment has little basis left, so its stock buys you nothing to depreciate. That recapture exposure is also why the seller pushes back on the structure you want.

Tax is not the only driver. Licenses the agency will not reissue quickly, government contracts, and non-assignable customer contracts can make the entity the only practical thing to buy. Loss carryforwards can survive, but Section 382 limits them after an ownership change.

What does the asset structure cost me in closing friction?

An asset purchase is not one transfer. It is many. Each class of property moves under its own instrument, each contract with an anti-assignment clause needs its counterparty’s consent, and several transfers are taxed or gated by a state agency. That friction means delay, and leverage handed to third parties before you close.

• A bill of sale, an assignment and assumption agreement, assignments of registered intellectual property, and vehicle titles on the state’s schedule rather than yours.
• An assignment of the lease signed by the landlord, or a new lease. The landlord is now a party to your closing.
• Lien searches, payoff letters, and UCC-3 terminations clearing the seller’s debt, plus a new UCC-1 for your lender.
• Licenses and permits reissued in your entity’s name, on the agency’s timeline. Health, liquor, contractor, professional.
• Employees terminated by the seller and rehired by you, with notice and health continuation duties to check.
• State transfer taxes on tangible property, subject to any occasional-sale exemption, plus bulk sale notice and tax clearance where the state still requires them. Clearances can force a holdback.

Consequence: permits are the sleeper. Nothing in your purchase agreement obligates an agency to move.

Every consent you need is a renegotiation you did not schedule.

Do not assume equity escapes consents. Many leases and supply agreements are drafted to catch a transfer of equity or a change of control. Read them yourself.

Why does the seller’s entity form change what my structure costs?

The target’s entity form decides how many times the seller is taxed on the same dollars. A C corporation selling assets is taxed on the gain at the entity level, and its shareholders again on the distribution. An S corporation or LLC usually has one layer. The same ask costs different money.

Application. Propose an asset purchase to a C corporation seller and you have not made a neutral request. You have asked him to absorb a second layer of tax, and he will refuse, price it in, or demand a gross-up. From an S corporation or LLC seller the objection narrows to recapture and to the price allocated to a personal covenant not to compete. One caveat cuts the other way: an S corporation that converted from C status within the recognition period can still owe built-in gains tax under Section 1374.

So establish entity form first. Form 1120 is a C corporation, Form 1120-S an S corporation, Form 1065 a partnership or multi-member LLC. Read those as tax classification, not legal form. An LLC can file any of them, and legal form drives merger mechanics and consents.

S status can also be defective. A bad election, an ineligible shareholder, or a second class of stock can break it years before anyone noticed. In an asset purchase that largely stays the seller’s problem. In an equity purchase it becomes yours.

Is a reverse triangular merger the middle path?

A reverse triangular merger is a third structure. You form a new subsidiary, merge it into the target, and the target survives as your wholly owned subsidiary. Nothing is conveyed asset by asset, which defeats some anti-assignment clauses but not all. For tax it generally lands where a stock purchase lands. No step-up by default.

Whether a merger trips an anti-assignment clause turns on the contract’s words and the governing state’s law; courts have gone different ways. It needs a corporate target, merger filings, and shareholder approval, and can trigger appraisal rights. Lenders at this size frequently will not paper it. Ask yours first.

How do the two structures compare side by side?

The table compares the asset purchase and the equity purchase on the points that decide a first acquisition financed by an SBA 7(a) loan. Read it as a starting map, not a verdict. The right answer changes with entity form, remaining tax basis, and the assignment language in the key contracts.

What does the SBA say about structure, and how current is that?

As of September 2026, SBA loan origination policy for the 7(a) program sits in SOP 50 10 8, effective June 1, 2025 and amended since by notices. SOP 50 10 8.1 governs loans receiving an SBA loan number on or after October 1, 2026. SBA revises this often. Confirm the version your lender applies.

The currency point is not academic. SBA sets effective dates by when a loan is approved and receives an SBA loan number, not by when you signed the letter of intent. Its December 2025 citizenship and residency notice did exactly that, and SBA rescinded and replaced it effective March 1, 2026. If your closing slips a quarter, the rulebook moves underneath you.

SBA financing is available for changes of ownership, and the regulation contemplates both complete and partial changes, so neither structure is off the table. Conditions, guaranty, and collateral requirements come from the SOP in force plus your lender’s credit policy, which can be stricter. Expect a personal guaranty; the regulation calls for one from holders of at least twenty percent.

Also as of September 2026: SOP 50 10 8.1 rewrites change of ownership requirements and adds a quality of earnings requirement above a stated price threshold. Do not take that threshold from an article. Ask your lender which version governs your file and what the threshold is when your loan number issues. No one can promise you approval or a closing date.

Authority: SBA SOP 50 10 8, effective June 1, 2025 (Information Notice 5000-866746, April 21, 2025); Information Notice 5000-880695, Issuance of SOP 50 10 8.1 (August 14, 2026, effective October 1, 2026); Procedural Notice 5000-872050 (December 19, 2025), rescinded by Policy Notice 5000-876441 (February 2, 2026); 13 C.F.R. 120.202; 13 C.F.R. 120.160(a).

What should I do in the next two weeks?

Work the sequence in order, because each answer narrows the next. Entity form, then consents, then basis against price, then what the lender will finance. Structure proposed before those four answers is a guess, and a guess written into a signed letter of intent is hard to walk back.

• Establish the entity form. Request the last three federal returns and the formation documents. Confirm tax classification and legal form, and have counsel confirm any S election.
• Read the assignment language yourself. Pull the lease, the top customer contracts, the franchise agreement, and any equipment financing. Mark every consent and change of control clause.
• Compare remaining tax basis to your price. Get the depreciation schedules showing tax basis, not book value, and raise it with your accountant if that basis exceeds what you are paying.
• Ask the lender what it will paper, and which SOP version governs your file.
• Price the friction in the operating states: transfer taxes, bulk sale notices, clearances, permits.
• Fix the allocation. Negotiate the Section 1060 allocation and attach it as a signed schedule.

Work that sequence and you negotiate from facts. Skip it and you negotiate from the broker’s preference, which is not built around what you owe.