How Do I Structure My Deal?

Asset deal? Stock Deal? 338 Election? Reverse triangular merger? F-Reorg? Installment sale? “Deal structure” refers to how a business sale is organized or “structured.”

Buyers and sellers have options when deciding how to structure a deal. For most lower middle market businesses, asset deals usually make sense, although stocks deals and more complex structuring may be appropriate depending on the circumstances.

Before jumping into a given structure, buyers and sellers should carefully weigh the

Stock Deal

In a “stock deal,” the buyer purchases all of the equity (stock, membership interests, partnership interests, etc.) in the entity from the current owners and ends up owning the entity.

Pros: The positives of this structure can include a more straightforward transition, better tax treatment for the seller, retained employees remain employed by the same entity, and change-of-control provisions for important contracts, licenses, and permits may not be triggered.

Cons: The negatives of this structure can include inheriting unknown / surprise liabilities, worse tax treatment for the buyer (no increase in basis), and the deal can be more easily blocked if all the owners aren’t on the same page.

Asset Deal

In an “asset deal,” the buyer purchases all (or most) of the assets of the seller and may assume some limited specified liabilities, but most of the liabilities remain with the selling entity.

Pros: The positives of this structure can include not inheriting unknown / surprise liabilities (although liens searches should still be conducted and your attorney should assist with assessing risk for successor liability, better tax treatment for the purchaser through increased basis, goodwill amortization, easier owner approval, and the ability to cherry pick employees to be retained.

Cons: The negatives of this structure can include deals being complicated by having to tease the assets to be purchased from those to be excluded and having to form a new entity to house the assets, worse tax treatment for the seller, and change-of-control provisions in important contracts may be triggered, requiring third-party consents.


In a merger, the seller’s business entity becomes part of the buyer’s entity (or a subsidiary) and ceases to exist as an independent entity post-closing. Typically, merger structures are most appropriate for larger businesses.

Tax Implications

Often, the tax impact of a particular structure will be a zero-sum game, where what one side realizes in tax efficiency the other loses. Even beyond basic structing considerations, additional alternatives are available.

For example, the parties can agree to treat a stock deal as an asset deal for tax purposes via a Section 338(h)(10) election (but not vice-versa). Tax efficiencies can be recouped (or lost) in an asset deal via the purchase price allocation. Installment sale structures can be used to spread sales proceeds across multiple tax years. Financial products are also available to achieve the same result.

In short, your tax advisor’s advice will be integral to guide you through this process.

Successor Liability

In an asset deal, taking the assets but excluding the liabilities at first blush appears to provide protection against unwanted surprises. In some instances, though, courts may still attribute those liabilities to the acquirer under the doctrine of successor liability. That is especially true of tax liens and, now in California, certain debts for wages.


Because deal structure is often agreed upon in the letter of intent (LOI), you will want t have your deal team assembled and advising you on structure at the LOI-stage. After agreeing to a disadvantageous structure in an LOI, it is very hard to renegotiate.

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