The first structural sentence in any letter of intent says whether the buyer is purchasing your company’s assets or its stock, and most first-time sellers read past it the way you read past a rental car agreement. Don’t. That sentence moves six figures of taxes, decides who owns the company’s history, and determines whether your client contracts transfer with a signature or a hundred permission slips. It’s also the purest tug-of-war in deal-making, because on this one question, buyer and seller interests point in genuinely opposite directions.
Here’s the whole fight, in plain terms.
What each one actually is
In a stock sale (or membership-interest sale for an LLC), the buyer purchases the entity itself. Your corporation keeps existing with all its contents (contracts, licenses, bank accounts, history, skeletons); only the ownership certificates change hands. The company that signed every agreement is still the company performing them, which is why things tend to carry over quietly.
In an asset sale, the buyer forms or uses their own entity and purchases the contents of yours: the client contracts, equipment, name, goodwill, and whichever liabilities they explicitly agree to take. Your entity remains yours, holding the sale proceeds and everything the buyer left behind, and typically winds down after a tail period. The company performing your client agreements after close is legally a different company, which is why nothing carries over quietly.
Most small and mid-sized MSP deals are asset sales. Understanding why tells you most of what matters here.
Why buyers want assets
Two big reasons. The first is taxes: in an asset sale the buyer gets a stepped-up basis in what they bought, meaning they can depreciate and amortize the purchase price (including goodwill, over 15 years) against future income. On a $3M deal that’s a stream of deductions worth several hundred thousand dollars in present value, and in a stock sale it mostly doesn’t exist, because they inherit your old, low basis instead.
The second is liability: in a stock sale the buyer acquires the entity’s entire past, known and unknown. The 2019 payroll tax quirk, the ex-employee dispute nobody mentioned, the client data incident that hasn’t surfaced yet. Reps, warranties, and indemnities can shift that risk back to you on paper, but the buyer would rather not own it at all, and an asset sale leaves the history in your entity by default.
Why sellers want stock
Also taxes, mirrored. A stock sale generally produces one clean layer of long-term capital gains on the whole gain. An asset sale gets carved up line by line: some of the price lands on equipment (triggering depreciation recapture at ordinary income rates), some on other categories with their own treatment, and if you’re a C corporation, an asset sale can be genuinely punishing, taxed once inside the company and again when the cash comes out to you. The same headline price can net a C-corp owner dramatically less in an asset deal, which is why entity type dominates this conversation and why your CPA belongs in it before the LOI is signed, not after.
Liability mirrors too: in a stock sale, the past goes with the company. In an asset sale, your entity (and its tail of obligations) stays behind with you, sometimes for years.
And there’s a sleeper issue that isn’t about taxes at all: QSBS. If you hold qualifying C-corp stock, the enormous federal exclusion only exists in a stock sale. An asset deal walks right past it.
The operational difference nobody prices until it bites
Here’s the part that touches your clients and team directly: contract assignment. In an asset sale, every client agreement has to move from your entity to the buyer’s, and any contract with an anti-assignment clause needs the client’s consent to move. That means the deal timeline now includes a quiet outreach campaign to your client base’s legal departments, and your biggest, most enterprise-flavored clients (the ones with real MSAs) are exactly the ones most likely to hold consent rights. Government contracts are stricter still, often requiring formal novation. A stock sale usually avoids most of this, because the contracting entity never changed, though some sophisticated contracts have change-of-control clauses that trigger anyway.
Employees follow a similar pattern: in an asset sale they’re technically terminated by your entity and hired by the buyer’s, which means new paperwork and, if handled lazily, broken benefit continuity and spooked people. Handled well it’s a non-event, but “handled well” is a work item someone has to own, and your team’s experience of the transition rides on it. Licenses, vendor agreements, the office lease: same story, item by item.
Where the compromise lands
Given all that, how do real deals resolve the tug-of-war? Three common landings.
Most often, the deal is an asset sale (buyer preference wins on structure) and the seller gets compensated in price or terms for the tax difference. This is the standard shape for LLCs and S-corps, where the seller’s asset-sale tax penalty is modest, and the negotiation is really about the purchase price allocation across categories, which deserves its own post and gets one.
Second, the deal is a stock sale because it has to be: too many unassignable contracts, licenses that can’t reissue, or a seller tax situation (C-corp, QSBS) that makes asset treatment a dealbreaker. Buyers accept it and protect themselves with heavier indemnities and escrows.
Third, the tax code offers hybrids that let both sides win on different axes: elections that treat a legal stock sale as an asset sale for tax purposes, letting contracts stay put while the buyer gets their step-up. These involve their own negotiation (someone pays for the privilege), and they’re firmly CPA-and-attorney territory, but knowing they exist keeps you from believing anyone who says “it’s this way or no deal.”
The takeaway is a sequencing rule: know your entity type’s story, get your CPA’s read on both structures against your actual numbers, and do it before the first LOI arrives, because the structure sentence you sign there sets the default for everything after. The deal structures overview covers the rest of the toolbox, but this is the foundation the toolbox sits on.