In selling your business, you can structure the deal as a stock sale or an asset sale. Most sellers prefer stock sales and most buyers prefer to buy assets.
In a stock sale, the buyer purchases the stock you own in the company and acquires all of the business’s assets and liabilities as they stand. This gives you the opportunity to walk away from the business and any future obligations you that might arise. A stock sale is taxed at the capital gains rate, which is more favorable for you, the seller. A stock sale is usually a smoother transition, as the buyer can assume the business’s contracts and licenses.
In an asset sale, the buyer purchases just about all of the company’s assets, while you retain possession of the legal business entity. You may choose to sell specific tangible assets, such as equipment or inventory. But you may also sell intangible items such as your company’s trade name or license. Just like the tax implications of a stock sale are favorable to you, the tax implications of an asset sale are advantageous to the buyer. When assets are sold, the money flows into the company, with the company paying taxes on the sale proceeds. The money then needs to be distributed to the shareholders.