Why structure moves the number that matters
Sellers negotiate the headline price and receive the after-tax proceeds. On a large transaction the gap between a well-structured deal and a poorly structured one can run to tens of millions, which makes tax planning one of the highest-return activities available in a process, and one of the most commonly left too late.
The core point is that structure is negotiable and its cost falls on different parties in different ways. A structure that saves the buyer money may cost the seller more than it saves, and the party who modelled it first tends to win that exchange.
Asset sale against share sale
The fundamental question, and the one where buyer and seller interests actually diverge.
A buyer usually prefers an asset purchase. It steps up the tax basis of what is acquired, generating depreciation and amortisation deductions over the following years. It allows them to leave unwanted liabilities behind. And it produces a cleaner successor liability position.
A seller usually prefers a share sale. It generally produces capital treatment on the whole consideration rather than ordinary income on parts of it. It transfers contracts, licences and permits without the third-party consents an asset transfer often requires. And for a corporate seller it can avoid a layer of tax that an asset sale followed by a distribution would incur.
The difference is real money on both sides, which is why it is negotiated rather than assumed. The usual resolution is that the party who benefits compensates the other, and doing that well requires both sides to have modelled it.
The election that bridges them
In the United States, a section 338(h)(10) election allows a share purchase to be treated as an asset purchase for tax purposes. It is useful where the target is an S corporation or a member of a consolidated group, where the buyer wants the basis step-up, and where the seller can absorb the different treatment.
The election is not free to the seller, and its value to the buyer is calculable. That makes it one of the cleaner negotiations in a transaction: both sides can compute the number and split the difference.
Allocating the price
Where a transaction is treated as an asset purchase, the consideration is allocated across asset classes, and the allocation drives the buyer's future deductions and the seller's character of gain.
For a technology business the intangibles dominate. Patents, copyrights, goodwill and customer relationships are generally amortised over fifteen years by the buyer. Acquired software may be amortised faster depending on classification. That difference matters enough to the buyer that it is worth negotiating, and the allocation must be consistent between the parties in their filings.
The carve-out complications
Divesting a division rather than a company adds several issues that a company sale does not have.
State and local exposure, where the division has created nexus in jurisdictions the parent has not fully considered because the group filing absorbed it.
Transfer pricing, where intercompany arrangements between the division and the rest of the group have to be unwound. Cross-border groups should expect this to take longer than they think and to attract attention.
Tax attributes. Losses, credits and other attributes generally sit with the entity rather than the business, so a division carved out of a group frequently leaves them behind. If the attributes are valuable, the structure should be designed around them rather than discovering after the fact that they were stranded.
Withholding, where an international buyer may have obligations on payments that the seller has not modelled into net proceeds.
When to start
Six to twelve months before going to market, and in any case no later than the beginning of preparation.
Early planning allows entity restructuring where it helps, which usually has a holding period requirement and therefore cannot be done at the last minute. It allows the seller to quantify available attributes. It allows after-tax proceeds to be modelled under several structures before anyone is negotiating. And it means the seller responds to a buyer's structural proposal from analysis rather than from instinct.
A seller who has done this arrives at the negotiation knowing what each structure is worth to them and roughly what it is worth to the buyer. That is a strong position. A seller who has not is agreeing to a structure whose cost they will compute afterwards.
Getting advice
Use an adviser who does transactions rather than a general corporate tax practice. The specific experience matters, because most of the value is in knowing which structures the counterparty will accept and what they are worth to them.
Set against the sums involved, the cost of that advice is immaterial. It is among the few expenses in a process that returns a multiple of itself.
Editorial Team · Published for orientation, not as advice on a specific transaction. Any figure cited is orientation, not a valuation. See market notes.