Skip to content
(859) 555-0147

Asset Sale or Stock Sale and How the Price Gets Allocated

Two sellers with the same price can keep very different amounts after tax, and Lexington Business Brokers HQ wants owners to hear that before the offer is signed.

Here is the basic picture.

Prefer to talk? Phone (859) 555-0147 on a weekday.

The short version

  1. Most small deals are asset sales, and larger ones lean toward stock sales.
  2. The price is split among equipment, inventory, a noncompete and goodwill.
  3. Both sides file IRS Form 8594, and the filings must match.
  4. Settle the allocation before signing, not later.

Asset Sale or Stock Sale

In an asset sale the buyer takes the business assets and goodwill. In a stock sale the buyer takes the ownership shares. Most deals under about two million dollars, and many above it, are asset sales.

Stock sales appear more often in larger deals with several owners.

Cash Free and Debt Free

The usual starting point is cash free and debt free. You pay off business debt at closing and keep the cash and receivables for work already finished, unless the contract says otherwise. Settle which personal items, like a truck, stay with you.

How the Price Gets Split

The allocation divides the price among equipment, inventory, intellectual property, a noncompete and goodwill, which is whatever is left.

Different categories are taxed differently, and selling equipment above book value can trigger depreciation recapture. Ask your CPA to model the split before the offer.

Both Sides File the Same Numbers

Buyer and seller each report the allocation to the IRS on Form 8594. The numbers must match, or both sides risk questions.

Buyers tend to want more of the price in assets that depreciate quickly, while sellers often prefer goodwill. Both want their way.

Paying Over Time

If part of the price is paid through a seller note, installment payments can spread capital gains across several years. Your CPA decides whether that helps in your case.

Do It Before Signing

An allocation marked to be decided later is a fight waiting to happen. Agree before you sign.

Questions for Your CPA

  • How much of the price is goodwill, and how is it taxed?
  • Is there depreciation recapture on equipment?
  • Would installment payments help?

Next Steps

Read how an LLC is closed after an asset sale in the LLC guide, then see seller financing and SBA loans and find your sale price.

Tap to call (859) 555-0147