The stock purchase agreement — the liability you inherit.

The SPA is the minority structure because it imposes three costs the APA avoids. The buyer inherits the entity's liabilities — the full pre-close history. It loses the step-up in basis, which denies the 15-year amortization on customer list, goodwill, and non-compete that makes the asset structure tax-efficient. And it carries a disproportionate diligence scope, because the buyer is acquiring the entire company rather than a defined set of assets. For small deals, that diligence scope can consume a meaningful share of the seller's proceeds — a proportionality consideration that pushes deals toward the APA absent a specific stock rationale.

§ 01 · The seven inherited liabilitiesWhat comes with the entity.

A stock deal carries seven categories of inherited liability: undisclosed tax liabilities; pending and threatened litigation; E&O claims from pre-close work; employment liabilities (wage, workers' comp, discrimination); vendor disputes; regulatory exposures; and contract obligations the buyer might not have assumed in an asset deal. Each of these would have stayed with the seller's entity in an asset sale; in a stock sale they all transfer with the equity. This is the core reason the structure is the minority choice — the buyer isn't acquiring a clean book, it's acquiring a company with everything the company has ever done attached.

§ 02 · When stock is rightFive scenarios and three tax elections.

Five scenarios make the stock structure sensible. Non-transferable carrier appointments — specialty and E&S markets where the appointment attaches to the legal entity. Non-transferable licenses — state insurance licenses that sometimes transfer on an equity change of control and sometimes require a new application. Non-transferable contracts — anti-assignment clauses in leases, cloud software, or key producer agreements (with the caveat that anti-assignment often triggers on change of control regardless of structure). Attractive tax attributes — net operating losses, credits, and carryforwards, where Section 382 limits the value but value remains. And seller tax preference — a full entity sale taxed entirely at long-term capital gains rather than the asset-sale mix. Three tax-election structures convert stock to asset tax treatment: 338(h)(10) for corporate targets, 336(e) for non-corporate, and an F-reorganization plus 338(h)(10) for S-corps specifically, which delivers the selectivity of an asset deal with equity continuity for licensing and contracts.

§ 03 · The protections scale upCaps, holdback, survival.

The six pre-closing conduct covenants govern the gap between signing and closing: no dividends or distributions beyond ordinary course, no new debt beyond ordinary course, no material contracts without buyer consent, no settlement of material claims without consent, no changes to accounting methods or tax elections, and a closing condition for third-party consents, carrier continuation, a material-adverse-change clause, and regulatory approvals. These keep the entity from changing shape between handshake and close.

§ 04 · Hybrids and the decision ruleAsset default, stock fallback.

Three hybrid structures bridge the gap when neither pure form fits. A carve-out stock deal has the seller retain specific assets or liabilities — a personal vehicle, real estate, a dormant subsidiary — distributed out before the equity sale. A reverse triangular merger merges a buyer subsidiary into the target, which survives with the buyer as parent, treating the deal as stock for contract continuity while simplifying some transfer mechanics. And an asset deal with entity follow-on acquires via APA, then dissolves the seller's entity post-close after final distributions. The governing decision rule is asset-default-with-stock-fallback: lead with the asset structure, test stock only on specific rationale (carrier non-assignability, license, tax attributes), and don't let the seller's tax preference drive the structure without understanding what the stock structure costs the buyer in inherited risk and lost step-up.

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