The buyer wants an asset sale. Price it before you agree to it.

An asset sale is not neutral paperwork. It hands the buyer a fresh tax basis in what it buys. It leaves your entity holding every liability the buyer did not expressly assume. It also puts transfer taxes, consents, and a wind-up on your side of the table. Price all of it before the letter of intent locks it in.

Why does the buyer want an asset sale instead of buying my stock?

A buyer wants an asset sale because it takes the fixtures, equipment, goodwill and named contracts, takes a purchase-price basis in each item, and leaves behind everything it did not agree to assume. Acquired goodwill is amortizable over fifteen years. Your stock, absent a special election, carries your entity’s inside basis and its whole history forward.

Goodwill, going-concern value, customer lists, workforce in place and covenants not to compete are section 197 intangibles when acquired with a trade or business, amortized ratably over fifteen years from the month of acquisition, and anti-churning rules can deny amortization between related parties. As of August 2026, one hundred percent bonus depreciation applies to qualified property acquired and placed in service after January 19, 2025.

For a buyer borrowing to close, those deductions service the debt. Your stock produces none unless the parties elect or restructure. So the first draft says asset purchase. That is arithmetic, not aggression.

Law: 26 U.S.C. 197, including 197(c) and the anti-churning rule at 197(f)(9); Treas. Reg. 1.197-2; 26 U.S.C. 168(k), as amended by Public Law 119-21 (2025).

What liabilities stay with me if the buyer buys assets?

In an asset sale, the selling entity stays obligated on every liability the buyer did not expressly assume in the asset purchase agreement. Unpaid payables, employment claims, tax assessments and lease tails stay behind. The entity does not disappear at closing. Winding it up is a state law process, and it happens after your closing, not before.

With no operating cash flow afterward, sequence the wind-up: hold back cash for known claims, extend liability coverage where your policy allows a tail, follow your state’s dissolution and claims procedure, file final returns, close tax accounts, then distribute. That claims procedure is elective in many states, but distributing while claims are open can expose owners to clawback.

Employees are yours to terminate. The buyer decides whom to hire, so you owe final wages on your state’s timetable and accrued time off where your state or your policy requires payout. Continuation coverage can shift to the buyer as successor employer if you stop maintaining a group health plan.

Several states also make the buyer liable for your unpaid sales tax as a successor. In New York, the purchaser must notify the tax department at least ten days before taking possession or paying, and one who skips that notice can be liable for your unpaid tax up to the greater of the purchase price or the assets’ fair market value. California requires the purchaser to withhold enough of the price to cover your tax until the state issues a certificate. Expect escrow, a clearance certificate, or both.

The buyer buys the business. You keep the entity. Someone still has to turn out the lights, and your state’s statute sets the order.

Law: N.Y. Tax Law 1141(c) and Form AU-196.10; 20 NYCRR 537.4; Cal. Rev. & Tax. Code 6811-6815.

How do I turn a headline price into an after-tax number?

Start with total consideration, then allocate it. Consideration is cash, plus buyer equity at fair value, plus the buyer note at face, plus every liability the buyer assumes, including a mortgage on real property you convey. Allocation then decides how much of the gain is ordinary and how much is capital.

• Cash at closing, net of escrow and holdback.
• Buyer equity at fair value, not the buyer’s number.
• The note at face, discounted for standby and collection risk. Installment reporting defers part of the gain; recapture is generally reported in the year of sale, paid or not.
• Every assumed liability: payables, accrued vacation, equipment loans, any mortgage you convey.
• Earnout, valued at what you would take in cash now.

Applied: an eight million dollar deal in which the buyer assumes a one-and-a-half million dollar mortgage and a half million of payables is a ten million dollar amount realized, with gain measured asset by asset against your basis. An eight million dollar membership-interest offer with the debt inside the entity was never the same number.

Then allocate. Section 1060 requires the residual method, with goodwill absorbing what is left, and both sides report on Form 8594 for the year that includes the purchase date. The buyer wants weight on equipment, immediately deductible as of August 2026. You generally prefer goodwill, because gain on depreciated equipment is recaptured as ordinary income up to prior depreciation. An agreed allocation binds the parties, not the government, so negotiate it in the agreement and test it two or three ways first.

Law: Treas. Reg. 1.1001-2(a)(1); 26 U.S.C. 1060; Treas. Reg. 1.1060-1; IRS Form 8594.

Which closing costs fall on me and not on the buyer?

Real property transfer tax, sales tax on conveyed tangible personal property and bulk-sale clearance work all attach to an asset sale, and the statutory incidence is not always where the negotiation ends. Transfer taxes are frequently split by statute. Sales tax is usually imposed on the buyer and collected by you. Price both as of August 2026.

In Maine, transfer tax runs at two dollars twenty cents per five hundred dollars of value, half on the grantor and half on the grantee, and for transfers on or after November 1, 2025 an additional three dollars eighty cents per five hundred applies to value above one million dollars. Maine also taxes transfers of a controlling interest, more than fifty percent, in an entity holding Maine real property. Some states, not most, do the same.

In most states the tax on transferred equipment, inventory and fixtures is imposed on the purchaser while you must collect and remit it, so who bears it economically is a contract term. Some states exempt an isolated sale of a business; others do not.

The old UCC Article 6 bulk transfer filing is largely gone, repealed in nearly every state after the sponsors recommended repeal in 1989. What survives is the tax notice regime above.

Law: 36 M.R.S. 4641-A; Maine Revenue Services Property Tax Bulletin No. 31 (rates as of August 2026); 1989 recommendation to repeal UCC Article 6.

Do I need a shareholder vote to sell substantially all the assets?

Yes. In most corporate structures a sale of all or substantially all assets needs owner approval, not just board approval. Delaware requires a board resolution plus the affirmative vote of a majority of the outstanding shares entitled to vote. Your home state’s statute controls if you are not a Delaware corporation. LLCs answer through the operating agreement.

Delaware’s Court of Chancery has asked whether a sale strikes at the heart of the corporate existence and purpose, not merely at a percentage. Selling one division and keeping another makes the vote arguable. Selling the business and keeping a bank account does not. Delaware also gives no statutory appraisal rights on an asset sale, so a dissenter’s leverage is procedural, not a buyout right. Other states differ, and your charter or operating agreement can add consent rights the statute does not require.

Law: 8 Del. C. 271; Gimbel v. Signal Cos., 316 A.2d 599 (Del. Ch. 1974); Hollinger Inc. v. Hollinger Int’l, Inc., 858 A.2d 342 (Del. Ch. 2004).

Asset sale or equity sale: what changes for me?

Structure changes seven things for you: the buyer’s basis, where unassumed liabilities sit, how contracts and titles move, which transfer taxes apply, whose signatures you need, whether a stock exclusion is available, and what you are still doing ninety days after closing.

Law: 26 U.S.C. 1202, as amended by Public Law 119-21 (2025). Stock acquired after July 4, 2025 gets a tiered exclusion at three, four and five years, capped at fifteen million dollars per issuer, indexed from 2027, with a seventy-five million dollar gross asset ceiling. Stated as of August 2026.

Is there a structure that gives the buyer a step-up without an asset sale?

Yes. Two structures reconcile a buyer who needs basis with a seller who needs the entity intact. The first is a deemed asset sale election, where a stock purchase is treated as an asset purchase for tax purposes. The second is an F reorganization followed by a sale of interests in a converted entity.

The deemed elections are older, and the gates are real. Section 338(h)(10) needs a corporate buyer and an S corporation target or a consolidated group subsidiary, plus a joint election. Section 336(e) covers similar ground without a corporate buyer. Neither reaches an LLC taxed as a partnership.

The F reorganization is the structure most often used in owner-operated deals with an S corporation. The sequence in IRS guidance is mechanical: form a holding company, contribute the existing corporation’s stock to it, make a qualified subchapter S subsidiary election for the old corporation effective immediately after, then convert it to a single-member LLC. The buyer buys membership interests and is treated as acquiring an interest in assets, which delivers the step-up, while the entity keeps its contracts, permits, titles and employer identification number.

It does not fix your tax picture. You are still selling assets for tax purposes, so allocation and recapture look like an asset sale, and controlling-interest transfer tax can still apply where you own real property. The entity reaches the buyer with its liabilities inside, so expect broader indemnities. Confirm the subsidiary election timing; that is what makes it work.

Law: Rev. Rul. 2008-18; 26 U.S.C. 368(a)(1)(F); 26 U.S.C. 338(h)(10); 26 U.S.C. 336(e).

Does the buyer’s SBA loan dictate the structure?

An SBA 7(a) acquisition loan does not force an asset sale, but it constrains your seller note and the terms around it. As of August 2026, SOP 50 10 8 governs, effective June 1, 2025. SOP 50 10 8.1 takes effect October 1, 2026 and applies to applications issued an SBA loan number on or after that date.

Two points matter to you. A complete change of ownership requires an equity injection of at least ten percent of total project costs. Under SOP 50 10 8, a seller note counts toward that injection only if it is on full standby for the life of the SBA loan, and only up to half of the injection. Full standby means no principal and no interest paid to you while the loan runs.

A headline price carrying a large seller note may pay you less, and later, than it reads. Ask when the buyer intends to apply, and confirm which edition governs before you agree to the note.

Guidance: SBA SOP 50 10 8 (effective June 1, 2025); SOP 50 10 8.1 (effective October 1, 2026); SBA Information Notice 5000-880695 (August 14, 2026).

Structure is decided in the letter of intent. Reopening it in week nine reads as a retrade, and retrades cost the party who asks.

What should you do before you sign the letter of intent?

Before signing the letter of intent, price the structure rather than accepting it. The letter of intent is where structure hardens, and it hardens quietly. Four tasks, in order, will tell you whether the buyer’s asset sale is acceptable, whether it needs a price adjustment, or whether a bridge structure is the better trade.

• Model both structures after tax. Total consideration, two or three allocation splits, rates current as of August 2026. Compare cash in your pocket, not headline price.
• Inventory what stays behind. Payables, disputes, tax accounts, lease tails, employee obligations, and the escrow the wind-up needs.
• Pull the consent and transfer list. Every anti-assignment clause, every permit or title that must be reissued in the buyer’s name.
• Price the state taxes and confirm approvals. Transfer tax, sales and use tax and bulk-sale notice rules in each state where assets sit; then the charter, bylaws or operating agreement under your state’s statute.

Then write the answers in: structure, allocation principles, who bears transfer and sales tax, escrow size, treatment of the seller note, and who handles the wind-up. A letter of intent that says only asset sale has given away four decisions you could have negotiated.