What are the tax implications of the asset acquisition vs. company acquisition in the US?

Answer by Wray Rives:

Asset sale-

Buyer's perspective

Buyer is able to step up the basis of shorter lived assets, resulting in quicker depreciation and offering a tax advantage with lower taxes in the early years post acquisition.

Seller's Perspective

Asset sales usually result in higher tax for sellers because some categories of assets are subject to ordinary income tax rates on gain from the sale.

Also if the business is a C corporation, then sellers will face double taxation.  The corporation pays tax on the gain and the owner pays tax on dividend income when proceeds of the sale are distributed.  S corporations may also face built in gains tax on sales.

Stock Sale

Buyer's perspective

In a stock sale the buyer does not get to step up the basis of specific assets in order to re-depreciate those assets.  This typically results in higher post-acquisition tax liability.

Seller's perspective

Seller's get capital gain treatment on total gain, which will typically make a stock sale more attractive to a seller and result in lower tax on the transaction and potential corporate level tax is avoided.

That is strictly a US tax perspective and there are any number of other business and liability issues involved in an acquisition.

What are the tax implications of the asset acquisition vs. company acquisition in the US?