Insight
Asset sale vs. stock sale vs. merger: how an M&A deal is structured in Washington
Asset, stock, or statutory merger is the first real decision in selling a company, ahead of price. It sets what the buyer gets, which liabilities come along, and the tax bill on both sides.
Published
June 12, 2026
Updated
June 12, 2026
A buyer makes an offer for the business, and the owner’s first instinct is to negotiate the price. The price matters, but it is not the first real decision. That one is structure: is this an asset sale, a stock sale, or a statutory merger? The answer decides what the buyer actually walks away with, which of the company’s liabilities come along for the ride, and the tax bill each side pays. It gets locked in at the letter of intent, and it is expensive to renegotiate once the definitive agreement is being drafted.
The three structures sound interchangeable and are not. In an asset sale, the buyer purchases specific assets and leaves the rest behind. In a stock sale, the buyer purchases the ownership of the company itself and takes everything that comes with it. In a statutory merger, two entities combine into one by operation of law. Each carries a different answer on liabilities, consents, and taxes, and the right one depends on which side you are on and what the company is.
Asset sale vs. stock sale
This is the fork that matters in most closely held deals, and the buyer and the seller usually want opposite things.
In an asset sale, the buyer picks the assets it wants, the equipment, the contracts, the intellectual property, the goodwill, and leaves behind what it does not. Liabilities come along only if the buyer expressly assumes them, so the buyer takes a cleaner slate. The buyer also gets a stepped-up tax basis in the assets and the depreciation that follows, allocated across asset classes under IRC section 1060. The cost is mechanical: every assigned contract, lease, license, and permit has to be reviewed for whether it can be transferred and whose consent that takes.
In a stock sale, the buyer purchases the equity and steps into the company exactly as it stands. Mechanically it is cleaner, because the entity keeps its contracts and licenses and there is usually nothing to reassign. The catch is that the buyer inherits every liability the entity carries, the known ones and the ones no one has found yet. That is why the reps and warranties, the indemnity, and the escrow do the heaviest lifting in a stock deal: they are the buyer’s protection against what diligence missed.
Where the statutory merger fits
A statutory merger is the third path, and it works differently from a purchase. Instead of buying assets or shares, the parties file articles of merger and the target combines into the buyer by operation of law, under RCW 23B.11 for corporations or the parallel LLC provisions. Everything the target owned and owed transfers automatically, without assigning contracts one by one, and the deal goes through on a shareholder or member vote rather than the unanimous consent a stock sale can require.
That makes a merger the structure of choice when a buyer wants 100 percent of a company that has too many owners to get every signature, or when the parties want a tax-free reorganization. Structured to meet IRC section 368, a merger can let the seller roll equity into the buyer and defer the tax, which a straight cash purchase cannot. The price of that treatment is documentary discipline; the reorganization rules are unforgiving of sloppy structuring.
Here is how the three structures compare on the dimensions that get decided at the letter of intent.
The tax fork that usually decides it
Most asset-versus-stock disagreements are really tax disagreements. A buyer prefers an asset deal because the stepped-up basis lets it depreciate and amortize what it paid, a real cash benefit over the years after closing. A seller often prefers a stock deal, and a C-corporation seller feels it most: selling assets out of a C-corp is taxed twice, once at the company level and again when the proceeds reach the owner, while selling stock is taxed once as capital gain. An LLC or S-corporation seller has less of that asymmetry, which is part of why entity choice years earlier shapes how a sale is taxed.
There is a bridge between the two. A section 338(h)(10) election lets the parties treat a stock purchase as an asset purchase for tax purposes, giving the buyer the step-up while keeping the deal a stock sale legally. It only works for certain targets, and it changes who owes what, so it is negotiated, not assumed. The point is that the tax outcome is not a fixed consequence of the structure; it is one of the terms.
Liabilities, consents, and the clock
Outside of tax, the structure decides three practical things. Liabilities: an asset buyer takes only what it assumes, a stock buyer takes everything, and a merger moves everything by operation of law as a successor. Consents: an asset deal requires chasing a consent for each material contract and license, a stock deal usually avoids that unless a contract has a change-of-control clause, and a merger clears the transfer in one statutory step but needs the ownership vote. Timing: asset deals are often quickest for a clean, small target, while stock deals and mergers stretch when there are many owners or regulated licenses to move.
One more thing can lengthen any of them. A deal large enough to cross the Hart-Scott-Rodino threshold, which sits near $126 million for 2026, requires a premerger antitrust notification and a waiting period under 15 U.S.C. section 18a before it can close. Most middle-market deals fall below it, but the ones that do not need that timeline mapped at the letter of intent, not discovered late.
How to choose
The structure follows the company, the seller’s entity, and the buyer’s tolerance for inherited risk.
- A buyer who wants a clean liability slate and the tax step-up: an asset purchase, accepting the work of reassigning contracts and consents.
- A seller taxed as an LLC or S-corp, or a buyer that values speed and contract continuity over a pristine liability cutoff: a stock or equity purchase, with the reps, indemnity, and escrow carrying the risk.
- A 100 percent acquisition of a company with many owners, or a deal meant to be a tax-free combination: a statutory merger, with the documentary care section 368 demands.
Whichever it is, the structure belongs in the letter of intent, decided with the tax and the liabilities already modeled. It is the cheapest decision to get right early and one of the most expensive to revisit once both sides have signed an LOI built on the wrong one.
Frequently asked questions
What is the difference between an asset sale and a stock sale?
In an asset sale, the buyer purchases specific assets of the business and assumes only the liabilities it agrees to. In a stock sale, the buyer purchases the ownership of the company itself and takes all of its assets and liabilities, known and unknown. The difference drives which liabilities transfer and how each side is taxed.
Is an asset sale or a stock sale better for the buyer or the seller?
They usually pull in opposite directions. Buyers tend to prefer asset sales for the clean liability slate and the stepped-up tax basis. Sellers, especially C-corporations, often prefer stock sales to avoid the double tax that selling assets out of a C-corp triggers. Where the deal lands depends on leverage and on a section 338(h)(10) election if one fits.
What liabilities does the buyer assume in each structure?
In an asset sale, only the liabilities the buyer expressly assumes. In a stock sale, every liability the company carries, including ones diligence did not find. In a statutory merger, all of the target’s liabilities transfer to the surviving entity by operation of law.
What is a statutory merger, and when is it used?
A statutory merger combines two entities into one by filing articles of merger under RCW 23B.11 or the parallel LLC statute, with everything transferring by operation of law on an ownership vote. It fits a 100 percent acquisition where collecting every owner’s signature is impractical, or a tax-free reorganization under IRC section 368.
How does deal structure affect taxes?
Heavily. An asset deal gives the buyer a basis step-up under IRC section 1060 and can double-tax a C-corp seller; a stock deal is usually a single capital gain for the seller with no step-up for the buyer unless a section 338(h)(10) election is made; a properly structured merger can be tax-free to the seller under IRC section 368. The structure is a tax decision as much as a legal one.
The structure decision is made once, at the letter of intent, and it shapes everything after. Our M&A attorneys in Bellevue and Seattle have sat on both sides of the table and draft the structure they would have to defend. Talk to us before you sign the LOI, while the structure is still open.
