(Seller’s Perspective)
When selling a business in Florida, one of the most critical decisions you’ll face is how to structure the sale: as an asset sale or a stock (or if an LLC a membership interest) sale. Each structure carries different tax, legal, and liability implications. Here's a guide to the 15 most common questions sellers ask—along with insights, real-world examples, and potential pitfalls.
1. What is the basic difference between an asset sale and a stock sale?
- Asset Sale: You sell selected assets (and possibly agreed upon liabilities) of the business. The seller business entity remains the in place.
- Stock Sale: You sell your ownership interest in the company (stock for a corporation, membership interest for an LLC). The entity, with all its assets and liabilities, transfers to the buyer.
Example: In an asset sale, a seller transfers the restaurant’s kitchen equipment, goodwill, and lease. In a stock sale, the entire restaurant company changes hands.
2. Which structure do sellers typically prefer?
Sellers generally prefer stock sales, especially from a tax and liability standpoint. Stock sales allow a cleaner break, and potential long-term capital gains treatment on the entire sale price. However, that is not what usually happens.
3. What happens with liabilities in a stock sale?
In a stock sale, the buyer inherits all known and unknown liabilities of the company. That’s one reason why buyers often push for asset sales.
Sellers should expect intensive due diligence in a stock sale and may be asked to provide representations, warranties, and indemnities to cover unknown risks.
4. What happens to my employees in each structure?
- Stock Sale: Employees usually remain employed under the same entity.
- Asset Sale: Employees are terminated and may be rehired by the buyer.
Tip: In asset deals, be proactive about employee communication and employment-related obligations such as final paychecks, or accrued vacation.
5. Are there contracts or leases I can’t transfer in an asset sale?
Yes. Some contracts and leases aren’t assignable without landlord or customer consent. This can complicate asset deals.
Example: A commercial lease may have a clause prohibiting assignment without the landlord’s written approval. In a stock sale, the lease stays in place, however most landlords will require the seller to stay on as a guarantor and the buyer to sign a new guaranty.
6. Is one structure faster or easier than the other?
It depends. Asset sales often require re-titling assets, assigning contracts, and transferring licenses. Stock sales may involve more legal and financial due diligence, but fewer administrative transfers.
7. What happens to the company after an asset sale?
In an asset sale, the seller company entity remains in place and continues to exist, but now without operating assets. You may need to wind it down, change the name, pay off debts, or dissolve it after the sale depending on the structure of the deal.
8. Can I still be liable after selling the business?
Yes. In either structure, a seller may be on the hook for indemnification, undisclosed liabilities, or violations of reps and warranties.
Tip: A well-drafted purchase agreement should include limits on liability, time caps, or escrow or holdback provisions to protect both sides
9. How can I reduce my post-sale liability?
- Disclose everything: transparency during due diligence is key.
- Use strong legal counsel to negotiate clear indemnification limits.
- Include caps, baskets, and time limits in the agreement.
10. Is goodwill treated differently in each structure?
Yes. In an asset sale, goodwill is a separate asset. In a stock sale, goodwill is generally bundled into the stock price.
Please consult your CPA as you structure the sale.
11. What is the most common reason for a stock sale?
In Florida, stock sales are most common when the business holds licenses issued by the Department of Business and Professional Regulation (DBPR) that are not easily transferable, or where transferring them would require a lengthy or uncertain approval process.
For example, businesses like restaurants with alcoholic beverage licenses, salons, or construction companies with qualifying agents may choose a stock or membership interest sale so that the licensed entity remains intact and in continuous compliance. This avoids triggering reapplication, inspection delays, or potential gaps in licensure—issues that can arise in an asset sale where the buyer must reapply for licenses under a new entity. In these scenarios, preserving the existing licensed entity through a stock sale is often the smoother, more strategic option.
12. What’s the most common mistake sellers make?
Failing to plan ahead.
Sellers often:
- Don’t assess tax impact until too late
- Overlook assignability of key contracts
- Assume their entity type allows a stock sale when it doesn’t
- Sign LOIs that lock them into unfavorable terms
Advice: Engage legal and tax professionals before you sign a letter of intent.