Asset sale vs. stock sale — which structure protects you.

Roughly 90% of independent agency deals close as asset sales, and the asset purchase is the default for sub-$5M agencies for three buyer-side reasons. Control over what transfers — the buyer cherry-picks the assets and the liabilities it agrees to assume in writing. Successor-liability protection — the seller's entity remains the legal defendant for pre-close errors-and-omissions, employment, tax, and contract exposure. And a step-up in basis with Section 197 amortization — on a $3M book with most consideration in goodwill and the book itself, the buyer gets roughly $200K of annual tax deductions for 15 years, more than $1M of tax shielding across a typical hold, none of which is available in a stock sale where the buyer inherits the seller's low historical basis.

§ 01 · The structures comparedWhat each buys.

The asset structure's advantages are exactly the stock structure's costs, and vice versa. Where the asset deal re-papers continuity (and risks gaps), the stock deal carries it automatically; where the stock deal inherits the entity's whole liability history, the asset deal firewalls it. The decision is which set of trade-offs the specific deal can absorb.

§ 02 · When stock winsFour reasons.

Four conditions make the stock sale the right call. Carrier appointment continuity — when the top three carriers exceed 50% of revenue and the appointments are non-transferable, a six-week appointment gap on a $1.5M carrier costs more than the step-up benefit. License and regulatory continuity — multi-state operations facing months-long re-licensing. Contract assignability — anti-assignment clauses in leases, vendor agreements, or employment contracts that don't survive an asset transfer. And seller tax preference — a seller who wants the entire gain at long-term capital-gains treatment rather than a C-corp's double tax. The C-corp double taxation is the single biggest structure tension: an asset sale by a C-corp is taxed at the entity level on the sale and again at the shareholder level on distribution, which is often the quieter reason a buyer agrees to pay slightly more in a stock structure.

§ 03 · The four-test frameworkHow to decide.

For S-corp targets there's a hybrid that captures both sides: the 338(h)(10) election documents the deal as a stock sale — preserving carrier-appointment, license, and contract continuity — while the IRS treats it as an asset sale for tax purposes, so the buyer still gets the step-up. It typically requires a buyer-funded gross-up to make the seller whole, which is itself a priced term. When a buyer does take a stock structure, the inherited-liability package becomes load-bearing: prior E&O claims filed and unfiled, employment disputes, severance, tax audits, unknown vendor liabilities, prior contract breaches, and regulatory findings all come with the entity, which is why the reps package, indemnification caps, holdbacks, and survival periods carry far more weight in a stock deal.

§ 04 · Decide before the LOIThe structure is priced.

The structure decision should be made before the LOI, and the LOI should explicitly name the structure intended — because re-trading the structure at the purchase-agreement draft stage costs weeks. The structure choice is also itself priced into the deal: when a buyer insists on an asset purchase with a C-corp seller, expect a higher headline price or, on a stock-sale alternative, a larger holdback or longer survival to offset the wider liability exposure the buyer would be taking on. Reading the structure as a priced term rather than a legal formality is what keeps the negotiation honest — the question isn't only which structure is cleaner, but what each side is paying or conceding to get the structure it wants.

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