Business transactions
The structure behind the transaction.
Two deals at the same price can leave a seller in very different positions.
Who is this for
Owners on both sides of a deal
Owners preparing for a sale
Where the taxes can determine the date of the sale.
Buyers acquiring a business
Due diligence, structure, and how the business is purchased.
Partners restructuring
Buying out a partner, admitting one, or restructuring how the entity is held.
Companies taking capital
New money, new documents, and what the existing owners give up to accept it.
Succession planning
A sale to the next generation or to a long-term employee.
Where the outcome is set
Four decisions made before signing
Asset sale or equity sale
The two produce different tax outcomes for the buyer and seller, different liabilities, and different consent requirements. This is usually determined before a letter of intent is signed.
How the purchase price is allocated
Allocation across asset classes determines how the seller is taxed and the buyer's future tax deductions. It is negotiable, both sides report it consistently, and it can be overlooked.
Rollover equity and what it costs
Keeping a stake in the buyer's entity can defer tax on part of the proceeds, and it also means holding a minority interest on someone else's terms. The governance documents matter more than the percentage.
Indemnity, escrow, and survival
What the seller stands behind after closing, for how long, and how much of the price is held back against it. This is where a clean deal and a difficult one separate.
Qualified small business stock
Two numbers that can change the outcome
For stock in a qualifying C corporation, Internal Revenue Code Section 1202 can exclude gain on a sale from federal tax. The rules were amended in July of 2025, and the figures below apply to stock acquired after July 4, 2025.
5 years
For the full exclusion
Stock acquired after July 4, 2025, reaches a partial exclusion at 3 years and again at 4 years, with the full exclusion at 5 years. Stock acquired before that date remains under the prior 5 year rule.
$15M
Per issuer cap
The per issuer limit moved from $10 million to $15 million for newly acquired stock.
Internal Revenue Code Section 1202 carries qualification tests covering the entity type, the trade or business conducted, the gross assets of the business, and how the stock was acquired. Whether it applies is determined on a company by company basis. The figures here are the statutory limits, not a projection of any particular result.
Control
What a seller keeps control of
By the time a purchase agreement is circulating, most of these are already settled. Raised early, every one of them is still negotiable.
- The deal structure, asset or equity, settled before the letter of intent
- The allocation, negotiated rather than accepted at closing
- Which liabilities transfer, and which are carved out and left behind
- The scope of the non-compete, in years, in geography, and in activity
- What happens to key employees, including any retention the buyer expects
- The post-closing role, if there is one, and its terms
What it does not do
Four limits worth hearing early
Each one of these tends to come up eventually.
Structure cannot fix an unready business
Clean financials, documented contracts, and a management team that survives the seller are what set the price. Legal structure allocates the result, it does not create it.
The tax result depends on entity history
How the company was formed, prior tax elections, and prior ownership changes all constrain what is available now. This is diligence on your own company, done early.
The letter of intent carries more weight than it looks
It is largely non-binding, but it still frames nearly every term that follows. Leverage is at its highest in the days before it is signed.
It does not replace financial diligence
A quality of earnings review, a valuation, and the accountant's work sit alongside the legal work. Counsel is not a substitute for any of them.
Next step
Structure is cheapest to change early.
Bring the business as it stands, the entity, its history, and how far the conversation with a buyer or a partner has reached. If the deal in front of you is already sound, that is what you will hear.
Initial consultations are provided without charge.
Further reading: Qualified small business stock, and whether yours qualifies