Guide
Asset sale or stock sale: it changes who may sell it
Updated
Deal structure is treated as a tax question and settled late, often by the buyer's accountant. It is also a securities question, and that connection is almost never drawn: whether you sell assets or stock can determine whether the person selling your business needed a registration they do not hold.
What the IRS says about the two
In an asset sale the business is not one thing. The IRS treats the assets as falling into capital assets, depreciable property used in the business, real property used in the business, and property held for sale to customers. Capital assets produce capital gain or loss; depreciable and real property held over a year produce section 1231 treatment; inventory produces ordinary income or loss.
Both parties must then use the residual method to allocate the consideration to each business asset transferred, which is why allocation is negotiated rather than assumed.
A stock sale is simpler in this respect. Your interest in a corporation is represented by stock certificates, and selling them usually realises capital gain or loss.
Why that reaches the intermediary
Broker registration under federal securities law engages on transactions in securities. Stock is a security; a lathe and a customer list are not. So a business broker handling a pure asset sale is not brokering securities, and the registration question does not arise in the same way.
The moment the same deal is restructured as a stock sale, it does. If the intermediary is not registered and is not squarely inside the M&A broker exemption, its position has changed underneath it, and so has the enforceability of its commission agreement.
The clause almost nobody negotiates
Because structure is settled late and the engagement letter is signed early, the fee agreement is usually written before anybody knows which kind of deal this is.
Ask at engagement what happens to the fee if the transaction is restructured, and ask the intermediary to state in writing which position it will be in under each structure. A firm that has thought about it answers in a sentence. A firm that has not has just told you something more useful than its track record.
Who prefers which, and why you will be pushed
Buyers generally prefer asset sales, for a stepped-up basis and to leave liabilities behind. Sellers generally prefer stock sales, for capital gain treatment and a clean exit. That tension is normal and it is negotiated in price.
What is worth watching is an intermediary with a stake in the answer. An unregistered broker has a reason to prefer the structure that keeps it comfortable, and that reason has nothing to do with your after-tax proceeds. It is one more argument for asking the registration question at the start rather than the end.