Asset purchasevsStock purchase
The single most important structural decision in a private-company M&A deal. Which structure the buyer and seller agree on affects taxes, liabilities, consents, and speed of closing.
The one-sentence difference
In an asset purchase, the buyer purchases specific assets and assumes specific liabilities of the target — the target company legal entity continues to exist. In a stock purchase, the buyer purchases the equity of the target company itself and inherits everything.
Side-by-side
| Dimension | Asset deal | Stock deal |
|---|---|---|
| What the buyer gets | Specific assets + specific assumed liabilities | The whole company, including all liabilities |
| Buyer tax basis | Stepped-up to purchase price (attractive) | Carryover from target basis (no step-up) |
| Seller tax outcome | Often double-taxed (C-corp) or ordinary on some assets | Single capital-gains tax on stock |
| Successor liability | Limited to assumed liabilities; unknown claims stay with seller | All target liabilities transfer to buyer (known and unknown) |
| Contract assignability | Most contracts require third-party consent | Contracts follow the company; consent needed only on change-of-control clauses |
| Employee transition | Employees technically terminated and rehired | Continue seamlessly |
| Speed | Slower — third-party consents drive timeline | Faster — fewer consents required |
| Buyer preference | Typically preferred | Typically resisted (except with §338(h)(10)) |
When to use which
Buyer prioritizes clean liabilities, wants tax basis step-up, and can absorb the contract-consent workload. Nearly every buyer prefers this structure in the abstract.
Full article on Asset purchase →Target has hard-to-assign contracts (long-term customer agreements, licenses, permits), regulated licenses that don't transfer, or the seller is a §338(h)(10)-eligible S-corp.
Full article on Stock purchase →What they have in common
Both are governed by the same purchase-agreement architecture (reps, warranties, indemnification, escrow). Both trigger HSR filings above the threshold. Both require careful diligence.
Frequently asked
Which structure is more common in lower-middle-market M&A?
Asset purchase is more common for buyer-side reasons (step-up, clean liabilities), but stock purchase with a §338(h)(10) election is very common for S-corp sellers because it gives the buyer step-up while keeping seller tax treatment favorable.
Can we split the difference?
Yes — a §338(h)(10) election lets the parties treat a stock purchase as an asset purchase for tax purposes only. It requires an S-corp target (or Q-Sub) and both sides to agree in the purchase agreement.