Entities or Assets
You have two choices when you buy a business. You can either buy the assets (including trademarks, copyrights, liabilities, customer lists, etc.) or you can buy the stock if it’s a corporation or the membership interest if it’s an LLC. The buyer will more than likely want an asset sale. The advantages of buying the assets includes tax advantages with depreciation, the ability to exclude unattractive assets, removing the company’s debts and liabilities from the deal, etc. The main disadvantages to an asset sale for a buyer is losing valuable assets such as a lease that can’t be transferred to the new owner. If the buyer and seller agree to an asset sale, they will divide the assets and allocate a price to each one. The allocation affects depreciation and the cost basis of each asset.
But the seller will typically want to sell the entity to pay capital gains rates rather than income tax rates. If the seller is a corporation, the seller will want to avoid the huge hit that comes from double taxation.
Whatever the parties choose to do will affect the price. That’s why this decision will need to be made early.