Yellow metal sign.Angelica Bux and her son Duke own a fast-growing, family business Blue Skies Air Conditioning and Heating, LLC in Cotulla Texas. Angelica plans to retire by selling Blue Skies to Duke to fund her retirement.  Their business consultant developed their near-term plan to expand and maximize their business’ value. More recently, their tax and estate planning lawyers outlined an effective tax transition plan and the formation of a Blue Skies’ advisory team to support Duke’s management after the sale. To complete the purchase, should Duke buy the assets or Angelica’s membership interest in the Blue Skies’ limited liability company? Often buyers prefer to purchase the company’s assets, and sellers would rather sell the entire company. Why is that? Does an inter-family sale affect their decision?

An asset sale is the purchase of individual assets and liabilities. A stock sale is the purchase of the owner’s shares in a corporation / membership interest in a limited liability company. Potential legal liabilities and tax implications tend to be the parties’ primary concerns.

Asset Purchase

If it’s an asset sale, the buyer buys certain assets – equipment, licenses, goodwill, customer lists and inventory, and the seller retains legal title to the entity. Typically, the seller keeps the cash and the debt and delivers the business cash-free and debt-free to the buyer.

Advantages to the Buyer?

Generally, the thinking is that buyers prefer to buy assets and not stock to avoid all known and unknown risks and liabilities that may have accumulated with Blue Skies over the years. Formerly Blue Skies was primarily commercial HVAC installation. Those projects have resulted in litigation over the years. Although the claims were frivolous and litigation defense was paid by insurance, the buyer’s stock / entity purchase accepts the responsibility to deal with any lawsuit that arises. Granted a buyer and seller can contractually agree to separate these responsibilities and liabilities; however, an asset purchase is clear and more easily “enforceable.” And, yes, there are tax advantages to Duke buying the assets – to get a “step up” in the basis of the assets, among possibly others. Finally, a sale despite the objections of a disagreeable minority owner may better be accomplished through an asset sale – so long as the by-laws or applicable company agreement permit it.


To get the employees, the seller is required to fire and the buyer must re-hire them – with all the imagined challenges and expenses that may well include employment contracts with key employees. Contracts – especially with customers and suppliers – may need to be renegotiated and/or renovated by the new owner. Some assets may need to be retitled. The tax-absorbing seller may require a higher sales price to get the cash at closing they want.

Stock Purchase

If it’s a stock purchase, the buyer takes over the business entity – the transaction is simpler and more straightforward. Most contracts transfer automatically and seamlessly to the new owner. For the buyer, it’s “what you see is what you get” for both assets and liabilities. Yet, to deal with liability fears, the parties will generally have contractual representations and warranties that obligate each of them to certain conduct and actions after the closing – generally enforceable by reserves of final purchase payments or additional purchase payment obligations for exceptional business performance.

Advantages of a Stock Purchase?

No re-valuations and retitles of individual assets. The employees retain their current employment with the company. Because certain assets are more difficult to transfer due to issues of assignability, legal ownership and third-party consents – such as to certain intellectual property, licenses, leases and permits – easy assumption of otherwise non-assignable licenses and permits without specific consent can avoid the time consuming process of obtaining consents and refiling permit applications.


Little to no tax benefits, such as a “step-up” tax benefit, no handpicking of assets and liabilities. The only way to get rid of unwanted liabilities is to create separate agreements for the seller – for example, for Angelica to assume responsibility for them.

Tilting the Scales in Your Favor

If the general inclination is an asset sale over a stock sale, why should it make a difference if the sale is within the family? Depending upon Angelica and Duke’s circumstances, there could be many. Let’s assume that Duke has worked in the family business for a decade or more and that he is both mindful and fearful of unknown risks of litigation from old commercial HVAC installation projects. Yet, he is familiar with the problems, the claims and the process for resolution. For Duke, the risk of surprise and the process for dealing with the claims is much less daunting than to a new, third party buyer.

As between Duke and I-want-to-retire-and-leave-this-behind-me mother Angelica, who is better suited to handle these possible claims? Of course, it’s Duke. He knows the drill. He knows the broker and his insurance company’s methodology and responses. Moreover, so far, Blue Skies has had no out-of-pocket payment obligations and its insurance company has paid for all the costs of litigation. Managing that is something that Duke can do – and has the office personnel, records and structure to do – much better than Angelica when she is off touring the world.