Published: [DRAFT] | Last Updated: 2026-06-19 | By: Scott Sylvan Bell | Location: Kaanapali, Maui, Hawaii
How Does Selling A Business Actually Work?
Direct answer: Selling a business typically works one of two ways — an asset purchase or a stock purchase. In an asset purchase, the buyer takes everything the company has to offer but not the corporation, LLC, or subchapter — they combine your operation with their existing product, service, or flag. The seller retains records minus the client list, and uses the proceeds to pay off loans because a buyer wants a company that arrives turnkey and debt free from day one. The standard deal structure looks something like 80/20 — on a $100 deal, that is $80 cash at closing plus a $20 holdback as rep and warranty seller financing paid out over two to three years to confirm everything that was promised happened. A stock purchase is different. The buyer literally buys everything about the company — all the stock, the bank accounts, the credit cards, all the intellectual property, soup to nuts. Because they assume more risk (IRS audits, employee legal issues, vendor and client legal exposure), they typically pay less. For example, where an asset purchase might be $125 with a 20% earnout, the same buyer might offer $110 in a stock deal because they are taking on more risk. Which is right depends on your tax situation, your legal representation, and your accounting representation — you need qualified professional advice, because no one on the internet can answer that question for you.
This concept connects to several pieces in the Exit Ratio 360™ system. The LEAD Model is what you use to evaluate which deal structure (asset or stock) is actually right for you. For deal-mechanics content, see What Is A Termination Clause In A Letter Of Intent LOI and What Is A Profit Multiple In An LOI Contract. For the broader Maui exit-preparation series filmed on the same trip, see Why Investors Purchase Your Business History Before Your Future, 3 Ways To Prepare Your Business To Sell And Increase Valuation, What Happens If You Want To Give Up Your Business, How To Increase Your Business Valuation With First Party Data, How To Increase Your Business Valuation With MRR, How To Increase Your Business Valuation With Positive Reviews, and What Does Hire The Best Cry Once Have To Do With Your Business Valuation.
Asset Purchase Versus Stock Purchase — Side-By-Side
| Dimension | Asset Purchase | Stock Purchase |
|---|---|---|
| What buyer gets | Everything the company has to offer — combined under buyer’s existing flag | All the stock — bank accounts, credit cards, IP, everything soup to nuts |
| What seller keeps | The corporation, LLC, or subchapter shell; records minus the client list | Nothing — the entire entity changes hands |
| Buyer’s risk exposure | Lower — historical liabilities largely stay with the seller’s entity | Higher — buyer assumes IRS, employee, vendor, and client legal exposure |
| Typical pricing structure | Standard 80/20 split — 80% cash at close, 20% holdback paid over 2-3 years | Lower headline number to compensate for the additional buyer risk |
| Example offer math | $125 with 20% earnout — $85 cash today, rest earned over time | $110 from same buyer — lower because they are taking the additional risk |
| Buyer preference | Very common — most companies prefer asset purchases for the risk profile | Less common — some buyers say “I only do asset purchases” outright |
5-Step Process To Decide Between Asset And Stock Purchase
- Find out which structure the buyer is offering — some companies only do asset purchases, some are willing to do stock purchases. You just have to ask which one is on the table.
- Compare the offer math side-by-side — what is the asset purchase number with earnout terms, what is the stock purchase number, and what is the actual cash you receive at close versus over time.
- Consult your tax representation, your legal representation, and your accounting representation — the right answer depends on your specific situation. Scott Sylvan Bell is not an accountant, doctor, or marriage therapist (though he is a taco enthusiast), and qualified professionals are the ones who tell you which structure is best for you.
- Evaluate the post-sale roles and responsibilities you would have to fulfill — earnouts come with subject-to parameters you have to meet to receive the held-back money.
- Choose based on the total package — not just the headline number. A higher asset number might be worse after tax than a lower stock number depending on the situation, or vice versa. Professional advice is what tells you which.
Frequently Asked Questions About Selling A Business
Direct answer: These ten questions and answers cover the most common topics business owners raise about how selling a business actually works, including the two main deal structures (asset vs stock), the 80/20 deal pattern, what “turnkey and debt free” means, why stock purchases typically pay less, what risks the buyer assumes in a stock purchase, and which professional advice you need before deciding. Each answer runs 40-60 words for voice search and AI citation extraction.
How does selling a business actually work?
Selling a business typically works one of two ways — an asset purchase or a stock purchase. In an asset purchase, the buyer takes everything the company offers and combines it with their existing operation. In a stock purchase, the buyer takes the entire entity including bank accounts, credit cards, and intellectual property. The structure determines tax treatment, risk transfer, and pricing — which is why qualified professional advice is required.
What is the difference between an asset purchase and a stock purchase?
The difference between an asset purchase and a stock purchase is what changes hands. In an asset purchase, the buyer takes the operations, brand, and customer base but not the legal entity — the seller keeps the corporation, LLC, or subchapter shell. In a stock purchase, the buyer takes everything soup to nuts including the entity itself, the bank accounts, the credit cards, and all the intellectual property.
What is the standard 80/20 deal structure in a business sale?
The standard 80/20 deal structure in a business sale is 80% cash at closing and 20% held back as seller financing that pays out over two to three years. On a $100 deal, that is $80 cash today plus a $20 holdback. The holdback functions as rep and warranty — it confirms that everything the seller said was going to happen actually happened. The structure protects the buyer.
What does “turnkey and debt free” mean when selling a business?
“Turnkey and debt free” when selling a business means the buyer receives a company that operates on day one without any outstanding debt obligations. It is the seller’s role and responsibility to hand over a company in this condition. That is why proceeds from the sale typically go to pay off the seller’s existing loans first — the buyer is not assuming that debt, and the deal math requires it cleared before closing.
What is a holdback or seller financing in a business sale?
A holdback or seller financing in a business sale is the portion of the sale price the seller does not receive at closing. Instead, it is held back and paid out over two to three years. The holdback acts as rep and warranty — assurance that the seller’s claims about the business were accurate. If everything checks out, the seller receives the full amount over time. If issues surface, the holdback covers them.
What risks does a buyer take on in a stock purchase?
In a stock purchase, the buyer takes on all the legal and financial risks of the entity. That includes potential IRS audits of the seller’s prior years, employee legal issues that surface after close, vendor legal disputes from the entity’s history, and client legal issues from before the sale. The buyer is literally assuming all the risks because they are buying the company that holds those liabilities.
Why might a stock purchase pay less than an asset purchase?
A stock purchase typically pays less than an asset purchase because the buyer is assuming more risk. For example, the same buyer might offer $125 with a 20% earnout in an asset deal (so $85 today plus the rest over time), but only $110 in a stock deal because they are taking on the legal and financial exposure of the entire entity. The lower number compensates for the additional risk.
What factors should determine whether to choose asset or stock purchase?
The factors that should determine whether to choose asset or stock purchase include your tax situation, your legal representation’s advice, your accounting representation’s advice, and the specific deal economics on the table. The right answer is not universal — it depends on your individual circumstances. Qualified professionals tell you which structure produces the best after-tax outcome for your situation specifically.
Do all buyers offer both asset and stock purchase options?
No, not all buyers offer both asset and stock purchase options. Some companies will say upfront that they only do asset purchases. Some companies are willing to do stock purchases. The only way to know which structure is on the table with a given buyer is to ask directly. The buyer’s preference is part of the deal landscape you have to navigate when going to market.
What professionals should you consult before deciding between asset and stock purchase?
Before deciding between asset and stock purchase, you should consult your tax professional, your legal representation, and your accounting representation. Scott Sylvan Bell explicitly notes he is not an accountant, doctor, or marriage therapist — though he is a taco enthusiast — and that the decision belongs to qualified professionals who know your specific tax, legal, and financial situation in detail.
Full Transcript From the Video
Direct answer: The full cleaned transcript appears below for depth and accessibility. Scott Sylvan Bell explains how selling a business actually works through the two main deal structures — asset purchase and stock purchase — including the 80/20 cash and holdback pattern, the risk transfer in stock purchases, the example offer math at $125 versus $110, and the requirement to consult qualified tax, legal, and accounting professionals. Location recorded: Kaanapali, Maui, Hawaii.
If you are a business owner and you are looking to sell, how does selling a business work and what can you do about it? This is a fantastic question. I am Scott Sylvan Bell, coming to you live from Kaanapali, Maui on a perfect day to talk about sales and business and a perfect day to talk about you for Consulting Secrets.
You may be at the point where you are sitting and looking like — hey, I want to sell my company. I want to make my retirement. I want to move on. I want to do something different. There is going to be one of two ways that a company is going to come in and purchase you, or an investor.
What they are going to do is they are going to come in and they may purchase your assets. They may look and say — I just want everything that the company has to offer. I do not need the corporation. I do not need the LLC. I do not need the subchapter. I just want to come in and I want to take what you are doing. I want to combine it with my product or my service or put it under my flag, and you retain all the information that goes along with it, minus the client list.
That means whatever money that I pay you as an investor, you are going to use to pay off loans, because somebody who is purchasing a company wants a company that is coming in debt free. That is the thing. If I am going to sell you a company today, it is my role and responsibility to hand you over a company that is turnkey and debt free from day one. You can do that with assets — that is a very common way that most companies structure the deal.
They may say — hey, here is what we want to do to pay for these assets. We are going to give you a mix of cash. We are going to give you a mix of earnout. We are going to give you a mix of roles and responsibilities that you are going to have to do. And if you meet all those set parameters as a subject to, then we will give you all the money.
For easy math, this is a very standard deal — that is 80/20. 80% cash upon closing. So if it was a $100 deal, they would give you $80 cash, and then there would be a holdback of seller financing as a rep and warranty of $20. It might be paid out over two years. It might be paid out over three years. It is just to say — hey, everything that we told you was going to happen, happened.
Here is the other way that a structured deal may happen. When somebody comes in and purchases all the stock. They are literally buying everything about the company. They are coming in and they are saying — hey, I want to buy you, your company. And I want everything. I want to keep the bank accounts. I want to keep the credit cards. I want all the intellectual property. I want everything that goes along with this company from start to finish — or as they say in some places, soup to nuts. I am literally buying anything and everything that has to do with this company.
There is a little bit more risk because if something happens, they now own that risk — whether it is an IRS audit, whether it is a possible legal issue with an employee or a legal issue with a vendor or a legal issue with a client. They are literally assuming all the risks because they are buying all the stock.
Sometimes what will happen is because there is a risk versus reward factor, a company may come to you and say — hey, here is the thing. For your company, for asset purchase, I will give you $125 with a 20% earnout, which means today we are going to give you $85 and you are going to earn out the rest of your money. On a stock purchase, they may come to you and go — hey business owner, because we are assuming risk and because we are putting more of our skin in the game, and there are some liabilities now on us, instead of us handing you a check for $125, we will give you a check for $110.
So you are sitting here — hey Scott, which way is right? That is going to be dependent upon you, your tax situation, what your legal representation says, what your accounting representation says, because I am not an accountant, doctor, marriage therapist, but I am a taco enthusiast.
There is a way for you to absolutely sell your business, but it is typically going to be one of two ways. It is going to be an asset purchase, or it is going to be a stock purchase. You may have to have a qualified conversation, because I am some dude on the internet, to help you understand which way is going to work best for you.
There are a lot of different options. Some companies will say — I only do an asset purchase. Some companies will come back and say — we are willing to do a stock purchase. The thing is, you just got to ask.
You got one of three things to do from here. Just one of three. Find the subscribe button, click on it. Every time I send out a video, you will get an update. Two, hit follow. Three, share this video with a friend. We will see you soon. Thanks for watching.
