The buyer is insisting on an asset sale structure for liability protection, but we have critical municipal and supplier contracts that are difficult to assign. How do we push them toward a modified stock sale or a subsidiary acquisition structure to avoid operational disruption?

Question

Tyler Smith · Accepted Answer

Buyers almost always prefer an asset sale because it allows them to step up the tax basis of the acquired assets and avoid taking on your historical legal liabilities. For you, the seller, an asset sale can trigger higher tax rates and create immense operational headaches, especially if you have key supplier or customer contracts that require consent to assign. If these contracts are critical to your daily operations, trying to assign them during the transaction can delay your close and alert your market to the sale. To protect your business, you should negotiate a stock sale or a subsidiary acquisition structure. In a stock sale, the legal entity remains intact, and the contracts transfer automatically to the new owner, keeping your operations running smoothly. To convince a buyer to accept a stock sale, you must demonstrate that your company has a clean regulatory record and highly organized operations. You can use your Business Integration Rating to show that your legal, financial, and operational risks are fully mitigated. If the buyer still insists on an asset-based transaction, you must demand a tax gross-up payment to offset your increased tax liability and require them to handle the administrative burden of contract assignments.