Buying or Selling a Business

Business acquisitions and sales are among the most complex transactions in commercial practice. Whether you're buying your first business or selling the company you've built over decades, the structure of the deal determines your tax exposure, liability risk, and post-closing obligations.

Asset Sale vs. Stock Sale

Asset Sale: The buyer acquires specific assets (equipment, inventory, customer lists, intellectual property, goodwill) and assumes only the liabilities they agree to. This is the default preferred structure for most buyers because it limits liability exposure and provides a stepped-up tax basis on acquired assets. The seller reports the transaction as a sale of individual assets, each with its own tax character.

Stock Sale (or Membership Interest Sale for LLCs): The buyer acquires the ownership interests of the entity itself. The company continues to exist — with all its assets and all its liabilities, known and unknown. Preferred by most sellers because the gain is typically taxed at capital gains rates. Buyers should insist on robust representations, warranties, and indemnification provisions if agreeing to a stock purchase.

Key Transaction Documents

• Letter of Intent (LOI): Non-binding outline of deal terms — price, structure, due diligence period, exclusivity. Keeps both parties aligned before spending money on lawyers and accountants
• Purchase Agreement: The definitive document. Includes representations and warranties, indemnification, non-compete/non-solicitation covenants, closing conditions, and purchase price adjustments
• Due Diligence: Financial statements, tax returns, contracts, employee agreements, litigation history, regulatory compliance, intellectual property, customer concentration, environmental issues
• Bill of Sale / Assignment: Transfers ownership of assets at closing
• Transition Services Agreement: If the seller will assist with operations post-closing
• Seller's Non-Compete: Prevents the seller from opening a competing business — must be reasonable in scope, geography, and duration to be enforceable in PA

Purchase Price Considerations

Business valuation methods include multiple of earnings (EBITDA), discounted cash flow, asset-based, and comparable transactions. The allocation of purchase price among asset classes (equipment, goodwill, non-compete agreements, real property) has significant tax consequences for both buyer and seller. IRS Form 8594 must be filed by both parties reporting the allocation. Get your CPA and attorney involved early — restructuring a deal after closing is expensive or impossible.