Should I sell assets or stock?

The asset sale vs stock sale question for a small business comes down to one thing: what exactly is the buyer taking home? In an asset sale, the buyer buys the things your company owns, such as trucks, equipment, inventory, phone number, name and goodwill, and puts them into a company of their own. Your old company stays with you, with its tax history, lawsuits and old jobs. In a stock sale (or a sale of your LLC membership interest), the buyer buys the company itself, and everything inside it comes along.

Neither is "right". Each one moves risk and tax from one side of the table to the other. This guide explains how, so you can have a sharper talk with your CPA and attorney before you sign a letter of intent.

The two deals side by side

Why buyers often ask for an asset deal

Two reasons come up again and again.

Liability. A buyer who takes your company takes everything it ever did: a roof that leaks in three years, a misclassified worker, a sales practice a state later calls illegal. With an asset purchase, the buyer can leave most of that behind. Your purchase agreement will still have promises (called representations and indemnities) that keep you on the hook for some of it after closing.

Tax basis. In an asset sale, the IRS says the buyer's basis in the assets is set by the amount paid for the assets, and both buyer and seller report the deal on Form 8594 when goodwill could attach. In plain words, the buyer gets a fresh starting point for writing off what they bought, based on today's price. Buying stock does not reset the company's own asset values, so its write-offs follow your old, often fully depreciated numbers.

That is why the buyer's first draft will often say "asset purchase". It is a starting position, not a rule.

What an asset sale can cost you

Tax, explained generally (not advice)

The IRS treats an asset sale as many small sales. Each asset is treated as being sold separately to work out the tax. Capital assets give capital gain or loss, business property held over a year falls under section 1231, and inventory gives ordinary income. Buyer and seller must use the same method (the residual method) to split one lump-sum price across the assets, and whatever is left after the hard assets is goodwill.

The IRS also says a sale of stock usually produces capital gain or loss, and an interest in a partnership (which includes most LLCs taxed as partnerships) is treated as a capital asset, except the part tied to unpaid receivables and inventory, which is ordinary. If your company is a C corporation, the company itself generally recognizes the gain when it sells its assets and money you then take out can be taxed again on your side. That double layer is one reason C corporation owners push for a stock sale. Your entity type matters more than almost anything else here, so start with your CPA.

For how the bill is built up, read taxes on selling your business.

Your license and qualifier

This is where the trades differ from most small businesses. Many state contractor licenses belong to the company and are qualified by a person. In an asset sale the buyer's company is a different company, so it usually needs its own license. California's licensing board puts it bluntly: a new license is required whenever the business entity changes, licenses are not transferable from one business to another, and a sole owner license cannot be sold. A stock sale keeps the company and its license, but if you are the qualifier and you leave, the clock starts. In Florida, a business whose only qualifying agent leaves has 60 days to employ another before it must stop new contracting.

So the deal type does not solve the license problem by itself. A second qualified person on your payroll does. Start that 12 to 24 months before you sell.

Contracts, accounts and permits

In an asset sale, every contract the buyer wants (commercial service agreements, leases, supplier accounts, fleet loans) has to be assigned, and many say the other side must agree first. Expect calls to your biggest customers and your landlord before closing. Permits, phone numbers, websites and reviews also need moving. In a stock sale most of this stays put, unless a contract has a "change of control" clause.

If you run a roofing, plumbing or HVAC company

Common mistakes

• Arguing about the price and ignoring the split. In an asset deal, how the price is spread across trucks, inventory and goodwill can move your after-tax result by a lot. Settle it in the letter of intent.
• Assuming the license comes with the trucks. In most states it does not. Plan the qualifier first.
• Forgetting the old company. After an asset sale you still own the old entity. It may need to collect receivables, pay final bills, file final returns and stay insured for claims on past work.
• Not reading your own contracts. Leases, fleet loans and commercial service agreements often need consent to assign or have change of control clauses. Find them before a buyer does.
• Picking a deal type to save tax without checking liability. A stock sale can be better for your tax bill and worse for your sleep, because the buyer will ask for broader promises and a longer indemnity in return.

Questions to ask your CPA, attorney or broker

1. Given my entity type (C corporation, S corporation, LLC or sole owner), how would an asset sale and a stock sale each be taxed for me?
2. How should the price be split across equipment, inventory, goodwill and a non-compete, and how does each piece land on my return?
3. What will the old company still owe after an asset sale, and how long should I keep it open and insured?
4. Which of my contracts, leases and loans need consent to assign or have change of control terms?
5. Who will qualify the license on the day after closing, and does the deal type change that in my state?
6. What representations, indemnities and holdbacks should I expect for each deal type, and for how long?
7. If the buyer insists on an asset deal, what can I ask for in return?

Sources

1. IRS, Sale of a Business
2. IRS, About Form 8594, Asset Acquisition Statement
3. California CSLB, Change in Business Entity
4. Florida Statutes 489.119, Business organizations; qualifying agents
5. Roofing Contractors Association of Texas, Licensing program
6. Minnesota Statutes 326B.097, Prohibition of transfer
7. Illinois Roofing Industry Licensing Act (225 ILCS 335)
8. Texas Business and Commerce Code 27.02
9. Texas State Board of Plumbing Examiners, Responsible Master Plumber
10. Mass.gov, Apply for a plumbing business license
11. Texas TDLR, ACR Law and Rules booklet
12. Acquidex, HVAC pre-LOI diligence checklist Q1 2026