How the Deal Is Structured, and What You Keep

Structure decides how much of the price you keep, and every piece of it is negotiated — most of it at the letter of intent. By the time the definitive agreement is marked up, the expensive decisions are already made.

The specific application belongs to your CPA and your deal attorney. What follows is the map — what to ask, and what a concession is likely to cost.

In an asset sale the buyer purchases the assets and assumes specified liabilities, leaving your entity behind as a shell holding the proceeds. In a stock sale the buyer purchases your equity and the company continues with everything in it — contracts, permits, and every liability, known and unknown.

Price is what resolves it. A seller accepting an asset sale is accepting a worse tax outcome and should be paid for it — the gap is quantifiable, which is why your CPA belongs in the conversation before the LOI. There are also hybrid mechanisms that let a stock purchase be treated as an asset purchase for tax purposes, so ask whether one applies.

Once an asset sale is agreed, the negotiation moves to allocation — how the total price is divided across categories of assets. This is not paperwork: each category carries a different character of income for you and a different recovery period for the buyer, so your preferences are opposed almost everywhere.

A pass-through — S corporation, partnership, or LLC taxed as either — generally produces one layer of tax, at the owner level, on a sale of assets. A C corporation selling assets is taxed at the corporate level and again when proceeds are distributed — the double-tax problem, and the reason a C-corp owner’s preference is usually a stock sale.

Converting entity type is possible; converting and then selling shortly afterward can trigger rules built to prevent that, and those rules have look-back periods. An owner who learns their entity is wrong during LOI negotiation has learned it too late — which is why entity structure belongs in When to Start, not on the closing checklist.

Installment sales let you recognize gain as payments arrive rather than all at once, which can keep proceeds from bunching into one year and smooth the rate on them. The obligation is a receivable from the buyer, often unsecured or secured only by the business you just handed over. If the buyer falters you have a credit problem and a tax problem at once — the gain you already reported does not un-report itself. Mechanics around interest and, for larger obligations, additional charges all need current verification.

Earnouts tie part of the price to post-closing performance — risk transfer dressed as upside, and a bet on someone else’s management. You will not control pricing, capital spending, overhead allocation, or the accounting policies behind the metric you are paid on. If the metric is EBITDA, the buyer’s allocations can reduce it for reasons unrelated to performance; if it is revenue, they can hit it while destroying margin. Earnouts are sometimes necessary, but treat that portion as worth materially less than face value, insist on defined accounting methods and audit rights, and never plan your retirement around it.

Rollover equity makes part of your consideration a stake in the acquirer rather than cash — it aligns you with the buyer and can defer tax on that portion. It also leaves a slice of your net worth in an illiquid minority interest you no longer control, governed by an operating agreement whose terms on distributions, capital calls, drag-along rights, and exit timing you should read personally.

Escrow and indemnity holdbacks give the buyer a source of recovery if your representations turn out to be wrong — an undisclosed liability, a tax exposure, a customer dispute that predates closing. The negotiation is about size, duration, and what claims can reach it.

The working capital adjustment surprises almost every first-time seller. Buyers price the business assuming it comes with a normal amount of working capital — receivables, inventory, and payables in their usual balance — so the agreement sets a target, often called a peg, and the price adjusts against the actual number at closing. Both the peg and the definition of what counts are negotiated, long after the headline number is set.

Owner dependence lowers your price and creates the factual basis for a personal goodwill argument at the same time. The analysis is contested enough to need a deal attorney and CPA who have done it before, and it generally requires that you not have already assigned those relationships to the company by contract.

Section 1202 — qualified small business stock, or QSBS — can exclude a portion of the gain on the sale of eligible C corporation stock from federal tax, which makes it one of the most valuable provisions available to a seller when it applies. It carries a long list of requirements: entity type, how and when the stock was acquired, asset thresholds, holding periods, and per-issuer limits. Every one has numbers attached, several have changed, and I am stating none here. If you ever held C corporation stock, put QSBS on the list your CPA confirms in writing, early — some tests depend on facts from the year it was issued.

The same discipline applies to the other provisions: installment method rules, Section 1031 for any real estate in the transaction, opportunity zone reinvestment for the gain, and state-level treatment, which can differ from federal in ways that make residency and apportionment worth real analysis. Ask by name, and get answers before the LOI.

A seller who does not know what a term costs gives it away for free — usually late, when everyone is tired and the clause sounds administrative. Decide in advance which terms you will trade, and treat the tax structure as part of the price rather than paperwork that follows it. For the tax consequences on their own, capital gains and the tax mitigation book carry the rest.