Asset Sale: What it Is and How Does it Work
Jump to Section
Quick Facts — Asset Sale Lawyers
- Avg cost to draft an Asset Sale (all docs): $980.00
- Avg cost to review an Asset Sale (all docs): $670.00
- Lawyers available: 91 corporate lawyers
- Clients helped: 59 recent asset sale projects
- Avg lawyer rating: 4.83 (3 reviews)
Asset sales are helpful when one company wants to acquire another company’s entire or partial asset portfolio. However, there are several legal considerations to make since asset sales carry tax implications and other options are available. Preparing yourself with knowledge before approaching the process is essential to the best possible outcome.
This article describes asset sales, how they work, and other relevant details that buyers and sellers would want to know.
What is an Asset Sale?
Asset sales are types of business transaction where buyers purchase assets from a business, and the sellers retain legal ownership of the company. They carry less risk for buyers while allowing sellers to perform fair market value due to diligence measures thoroughly. Sales are only complete upon final asset acquisition, meaning sellers are liable for the assets until then.
How Does an Asset Sale Work?
Asset sales work by allowing a company to obtain valuable assets by purchasing another. At transaction close, the buyer must ensure that the acquiring company can continue doing business with the acquired assets.
You structure these transactions using an asset purchase agreement . Other names for this type of contract include:
- Asset sale agreement
- Asset transfer agreement
- Purchase agreement
The negotiation of an asset sale agreement typically starts when a prospective buyer submits a letter of intent to buy. If the seller agrees to the terms, both parties must sign the asset purchase agreement, including a non-competition agreement for specialized situations. Buyers and sellers should also include provisions that detail the Bill of Sale documents and transfer dates.
This web page describes asset purchase agreements.
Why Do Buyers Prefer Asset Sales?
Buyers prefer asset sales since they allow them to write off assets for tax purposes and also allow them to leave behind any liabilities or other potential risks that the selling company may have. All these assets are included in the price of asset sales which turns out to be a great deal for them over the long run, and sellers get to avoid capital gains taxes on the date of the transaction.
Asset Sale vs. Stock Sale
The main difference between asset sales vs. stock sales is that the buyer acquires some or all business assets under an asset sale, whereas stock sales only involve equity acquisitions. Buyers can select the assets they wish to purchase during an asset sale, but if they utilize a stock sale, they have to purchase the company in its entirety.
Apart from tax advantages, buyers and sellers may choose an asset or stock sale for various reasons. Asset sales are generally more advantageous to buyers, while stock sales are more advantageous to sellers. Generally speaking, asset sales take longer to complete than stock transactions, and the business may receive a higher fair market valuation.
What Are Stock Sales?
Stock sales are when a buyer purchases the existing legal entity’s shares directly and do not require in-depth analysis of each asset. Typically, businesses distribute or pay off unwanted assets and liabilities before closing. You utilize a stock purchase agreement when engaging in stock sales.
Check out this web page for more information about mergers & acquisitions.
Examples of Asset Sales
Here’s an example of how an asset sale works:
- Jem and Rio are the spouse co-owners of Hologram Gym
- They want to retire and liquidate their business
- They’re sole owners of the business and are requesting $500,000 for it
- The sale will include the entire property, building, parking lot, gym equipment, mats, towels, and furniture
- The couple can sell their assets, but they’ll have nothing left in the business
- This situation would require a real estate purchase agreement , and they would have to pay gains taxes at the time of the transaction
- Maria and Tony are another entrepreneurial power couple, and they’re considering purchasing Hologram Gym
- Hologram’s asset sale structure is perfect for Maria and Tony since they can essentially purchase a “turn-key” operation for a fair price
- Maria and Tony purchased Hologram Gym from Gem and Rio and formed a new LLC under the name West Side Gym
- They record the purchase of the gym’s assets in their newly formed LLC and begin operations
- Before finalizing the asset purchase , West Side Gym performed its due diligence by auditing the current customer agreements between Hologram and their members
- Hologram’s contracts allow for the transfer of customer contracts to asset sale buyers
- West Side Gym completes the transaction and is happy to walk away with an ideal outcome
The example above demonstrates how powerful asset sales can be for buyers and sellers. Gem and Rio avoided significant tax implications by using an asset transfer versus selling assets separately. Tony and Maria were able to get a great deal on a gym of their dreams with an existing customer base.
Image via Pexels by fauxels
Tax Treatment for Asset Sales
Whether buying or selling a business, tax considerations can complicate any transaction. Finding a transaction structure that meets the buyer’s and seller’s needs are complex issues to address as soon as possible. One of the most critical tax considerations to make when structuring a buy-sell agreement is whether to treat it as an asset sale or stock sale.
Below, we’ve outlined five tax treatments for asset sales to consider when deciding on your company’s strategy:
Treatment 1. Depreciation and Re-Depreciation
The buyer may increase asset values to their fair market value for asset sales and re-depreciate them, including bonus depreciation. This option allows for massive tax savings on capital gains.
Treatment 2. Amortization
Buyers may also choose to allocate a more significant portion of the purchase price to rapidly depreciating assets and a lesser amount to amortizing goodwill slowly. Current tax laws allow for amortization over fifteen (15) years while remaining tax-deductible but not for accounting purposes.
Treatment 3. Tax Gains Rates
Certain asset sales gains are taxed at a higher rate than ordinary income. It would be best to discuss the acquisition of the assets with a legal professional since the assets you’re acquiring will affect your taxes.
Treatment 4. C-Corporations
If the seller is a C Corp , the gain may be subject to double taxation, and this outcome is not unusual since double taxation is standard for operating a c-corp. The acquiring business pays corporate taxes on capital gains while shareholders face the second taxation from sale proceed dividend distributions.
Treatment 5. Section 338 (H)(10)
Parties of pass-through entities may elect Internal Revenue Service (IRS) Section 338 (H)(10) to treat stock sales as asset sales for tax purposes. This option helps the buyer benefit from the depreciation deduction without incurring the cost or inconvenience of transferring asset ownership.
Regardless of your strategy, be aware that buying and selling a business is a complicated process that requires prior consultation with asset purchase agreement lawyers for the best possible result. This strategy will help you avoid expensive legal mistakes that could cost you a significant amount in the future.
Get Legal Help with Asset Sales
An acquisitions lawyer has experience and knowledge of the relevant laws applicable to asset sales. They can also help you draft and finalize the written legal documents for your situation. Connect with an award-winning legal professional in your state today.
Post a project in ContractsCounsel’s marketplace to get flat fee bids from lawyers for your project. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.
See Real Asset Sale (all docs) Projects
California Sell contract agreement for foodtruck Drafting
- California
- 2 lawyer bids
- $695 - $1,250
New Hampshire Assets Sale Agreement for a small business Drafting
- New Hampshire
- 16 lawyer bids
- $325 - $3,250
See all Asset Sale (all docs) projects
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
Need help with an Asset Sale?
Meet some of our Asset Sale Lawyers
Tim E.
I help small businesses, entrepreneurs, and business owners draft, review, and negotiate the agreements behind their operations and transactions. My work includes service agreements and MSAs, LLC operating and shareholder agreements, business purchase documents, commercial leases, independent contractor agreements, and NDAs. My approach is practical: understand what you are trying to accomplish, identify the terms that materially affect the deal, and deliver clear, usable documents without unnecessary complexity. For reviews, I focus on meaningful risks and proposed solutions, with redlines and plain-English explanations. I offer fixed-fee services for defined projects, from a single contract review to a broader business transaction. Each proposal identifies the deliverables, revision scope, and expected turnaround so you know what is included before we begin.
"Excellent experience with Tim on my relatively complex EULA for a suite of network appliance products. Tim was very fair with pricing, responsive, diligent, thorough, technically knowledgeable, took the time to address all my questions and concerns, and finished (with revision) on schedule and budget. Great experience overall and I'll definitely be using Tim for more work in the future with my business. I'll also be using Contract Counsel and recommending it to everyone I know as well! THANK YOU! -Devin"
Max M.
Business attorney with a focus on the health care sector, bringing Biglaw experience in multi-million dollar mergers and acquisitions, financings, and general corporate counsel work to the small firm space. I now help startups and growing companies access the same level of sophistication and strategic guidance typically reserved for large institutions.
"Overall, Max M. did a great job compiling the demand letter. He was very thorough in requesting documentation, responding to questions promptly, and producing the letter. He provided reasonable explanations for the tone that he used along with recommendations for when to send it and what to demand. Additionally, he was very responsive and updated the draft promptly after feedback was provided. There were some minor grammatical errors present, but as Max M. provided me with a word document, I was able to easily rectify those."
Samuel R.
My career interests are to practice Transactional Corporate Law, including Business Start Up, as well as Real Estate Law, Estate Planning Law, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I currently serve as General Counsel for a bioengineering company. I handle everything from their Business Transactional Agreements, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing expert specialized legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I was selected to the Super Lawyers Southwest Rising Stars list for 2024 - 2026. Each year no more than 2.5% of the attorneys in Arizona and New Mexico are selected to the Rising Stars. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, and also trademark registration and licensing.
"Sam was awesome to work with, super helpful, knowledgeable, and professional. Highly recommend."
Odini G.
I am an accomplished attorney with more than 19 years of experience and extensive expertise in business negotiations, commercial contracts, and technology transactions. With a proven track record of providing strategic legal advice and delivering exceptional results, I have successfully assisted numerous clients in drafting, reviewing, and negotiating various business arrangements. My experience encompasses a wide range of areas, including intellectual property, data privacy and security, SaaS agreements, and software licenses. I co-founded a reputable general corporate law firm with three offices in Aspen, Atlanta, and New York. As a partner and attorney, I represented diverse clients, including start-ups, public corporations, investors, financial institutions, educational institutions, and non-profit entities. With a focus on delivering comprehensive legal solutions, I provided general counsel, expert dispute resolution, efficient litigation management, and skillful contract drafting and negotiations for businesses across industries.
"Initial phase and scoping with Odini has been clear and straightforward"
Ramanathan C.
Triple Qualified New York Attorney, Australian Lawyer & Enrolled NZ Barrister & Solicitor
"Rama was timely and responsive to all my needs & questions. From day one, he presented a tailored proposal for my project that felt personalized and thoughtful. He is pleasant to work with and professional with his legal advice. I'd be happy to work with him again."
Angela H.
Angela Hayden is an accomplished and driven attorney with a diverse professional background that sets her apart. Having served as a former Assistant Public Defender in Allegheny County, Angela acquired invaluable expertise in navigating the complexities of the criminal justice system. Her trial experience spans a wide range of cases, from minor retail theft to complex criminal homicide, demonstrating her ability to deliver successful outcomes for her clients. Prior to her focus on criminal defense, Angela honed her skills in public policy and political consulting through her work with both the Pennsylvania and United States House of Representatives. This experience provided her with a deep understanding of the intricacies of public policy and the ability to offer strategic guidance to clients. Angela's career also took her to a civil defense firm, where she traveled across the country, defending clients in litigation. This experience enhanced her ability to handle complex civil matters and strengthened her litigation skills. In addition to her expertise in criminal defense and civil litigation, Angela has demonstrated her proficiency in employment law, providing guidance and consultation to small businesses and non-profit organizations. Her keen insight into employment law matters ensures that businesses operate within legal boundaries while fostering a positive work environment. Furthermore, Angela is a licensed realtor, well-versed in residential real estate transactions. This additional knowledge allows her to offer comprehensive legal support to clients involved in real estate matters, ensuring their interests are protected throughout the process. Angela holds a degree from Hampton University and obtained her Juris Doctor from the University of Dayton School of Law. She is pursuing a Master of Business Administration. She is licensed to practice law in Pennsylvania and the District of Columbia, demonstrating her commitment to providing exceptional legal services in multiple jurisdictions. With her extensive experience and passion for achieving favorable outcomes for her clients, Angela Hayden is a dedicated advocate ready to guide you through your legal journey.
Don K.
Oliver Keene is not your typical attorney. With a personal touch and a passion for helping others, he goes above and beyond to provide exceptional legal services. Born and raised in the heart of the Appalachian coalfields, Oliver understands the value of hard work and perseverance. His small-town upbringing instilled in him a deep sense of community and a commitment to making a difference in people's lives. Oliver's journey in the legal field began with a Bachelor's degree in Criminal Justice from Bluefield University. He went on to earn his Juris Doctorate from Lincoln Memorial University - Duncan School of Law, where he excelled in his studies and developed a strong foundation in law. Throughout his career, Oliver has gained invaluable experience working as a public defender, an attorney advisor for the Small Business Administration, and in various legal roles. With a focus on estate planning and business law, Oliver is dedicated to helping individuals and families protect their assets, plan for the future, and navigate the complexities of the legal system. His approachable demeanor, attention to detail, and genuine care for his clients set him apart. Oliver's clients can trust that he will go the extra mile to ensure their legal needs are met with the utmost professionalism and personalized service. Outside of his legal practice, Oliver enjoys spending time with his wife and daughter, exploring the great outdoors, and indulging in his passion for hunting and fishing. His commitment to serving military families is evident in his offering of discounted services as a token of gratitude for their sacrifices. When you choose Oliver Keene as your attorney, you're not just hiring a legal professional - you're gaining a trusted advisor and a compassionate advocate. With Oliver by your side, you can have confidence that your legal matters will be handled with the highest level of expertise and care.
Find the best lawyer for your project
Browse Lawyers NowLawyer Reviews for Asset Sale Projects
Sales Agreement for Review
"Great communication. Daehoon was quick to respond and turn around our project. Quality work and detailed explanations. Recommend."
Asset Purchase Agreement Review
"Thank you for your excellent support in reviewing our Asset Purchase Agreement. Your attention to detail, clear guidance, and professionalism made the process smooth and gave us great confidence moving forward. We truly appreciate your help!"
Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.
View Trustpilot ReviewNeed help with an Asset Sale?
Corporate lawyers by top cities
- Austin Corporate Lawyers
- Boston Corporate Lawyers
- Chicago Corporate Lawyers
- Dallas Corporate Lawyers
- Denver Corporate Lawyers
- Houston Corporate Lawyers
- Los Angeles Corporate Lawyers
- New York Corporate Lawyers
- Phoenix Corporate Lawyers
- San Diego Corporate Lawyers
- Tampa Corporate Lawyers
Asset Sale lawyers by city
- Austin Asset Sale Lawyers
- Boston Asset Sale Lawyers
- Chicago Asset Sale Lawyers
- Dallas Asset Sale Lawyers
- Denver Asset Sale Lawyers
- Houston Asset Sale Lawyers
- Los Angeles Asset Sale Lawyers
- New York Asset Sale Lawyers
- Phoenix Asset Sale Lawyers
- San Diego Asset Sale Lawyers
- Tampa Asset Sale Lawyers
ContractsCounsel User
Sell contract agreement for foodtruck
Location: California
Turnaround: Less than a week
Service: Drafting
Doc Type: Asset Sale (all docs)
Number of Bids: 2
Bid Range: $695 - $1,250
ContractsCounsel User