How your business sale is structured affects not only your final payout, but also your tax liability, risk exposure, and what happens after closing. The right structure can maximize value and make for a smoother transition — the wrong one can leave money on the table or create headaches long after the deal is done.
This stage is where legal, financial, and strategic decisions come together, making it essential to work closely with your advisory team.
Common Deal Structures
Asset Sale
The buyer purchases specific assets — such as equipment, inventory, and customer lists — rather than the legal entity itself.
- Buyer’s perspective: Can pick and choose assets and avoid some liabilities.
- Seller’s perspective: May face higher taxes due to depreciation recapture and other factors.
Stock or Equity Sale
The buyer purchases the owner’s shares or membership interest in the business entity, acquiring all assets and liabilities.
- Buyer’s perspective: Simpler transfer of contracts and licenses, but also assumes all existing liabilities.
- Seller’s perspective: Often more tax-efficient, with capital gains treatment on the sale.
Mergers or Gradual Ownership Transfers
Sometimes, a buyer wants to merge your company into a new subsidiary of theirs created just to buy your company. There can be tax advantages to structuring a deal with way.
In some cases, ownership changes over time — often used in family business transitions or succession planning.
Payment Terms and Mechanisms
- Cash at Closing – Best for sellers, as it eliminates future payment risk.
- Seller Financing – The seller acts as the lender, receiving payments over time (higher risk, but may increase buyer pool).
- Earn-Outs – Part of the price depends on future business performance. Can bridge valuation gaps, but often lead to disputes if not clearly defined.
- Equity Rollovers – Seller retains partial ownership in the buyer’s company with the hope of future gains.
Representations, Warranties, and Indemnities
Representations and Warranties are statements you make about your business’s condition — such as the accuracy of financials, compliance with laws, and ownership of assets.
Indemnities spell out what happens if those statements turn out to be false or if liabilities arise post-sale.
Negotiating these terms carefully is critical. Overly broad or long-lasting obligations can expose you to significant risk after the sale.
Post-Closing Considerations
Working Capital Adjustments
Ensures the business has a set amount of working capital at closing. Any shortfall may require you to refund part of the purchase price.
Employee Transition
Plan for how key staff will be retained and how roles will be communicated. Buyers value stability in leadership and operations.
Customer Communication
Work with the buyer to ensure customers feel supported and confident after the ownership change.
Integration Planning
The buyer will likely make operational, cultural, and systems changes. Having a plan for a smooth handover can protect the value you’ve built.
Why Structure and Planning Matter
The structure you choose and the transition plan you execute can be just as important as the price you negotiate. Done well, they protect your interests, preserve the buyer’s confidence, and help ensure your business thrives under new ownership.
Sometimes buyers, especially inexperienced ones, will suggest structures that don’t match any of the above or are some odd hybrid. The above structures are common for a reason. They are well understood and work. Odd structures like buying in over time, 100% seller financing, “buy now, pay later” deals where the buyer takes ownership now but the seller doesn’t get paid until later are all highly risky for sellers and should normally be rejected. If you as the seller are desperate to sell and these are your only choices, you have few choices, but understand that if you had planned earlier and better, you would have more options.
FAQs
Q: Which is better for taxes — an asset sale or a stock sale?
A: It depends on your business structure, assets, and personal tax situation. An experienced M&A attorney and tax advisor can model both scenarios for you.
Q: Are earn-outs a good idea?
A: They can bridge a valuation gap but require clear, measurable performance criteria to avoid disputes. Most M&A advisors advise against earn-outs.
Q: How soon should I plan for post-sale transition?
A: Ideally, while you’re still negotiating the sale. A well-defined transition plan is a strong selling point for buyers.
