This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Here is the asset-versus-stock story Florida founders almost never hear before signing the LOI. A typical Florida founder spends six months negotiating a sale of his company. The structure line on the LOI — one of fifteen bullets between the indemnification basket and the no-shop — says “Asset Purchase.” The founder reads it as a tax footnote. He does not negotiate it. He signs the LOI on a Tuesday. By the following Monday his deal lawyer is explaining to him that his Florida DBPR license does not transfer with the assets, his commercial lease has a landlord-consent clause that just gave the landlord a renegotiation hammer, his largest customer’s master services agreement has an anti-assignment provision, and the Florida Department of Revenue is going to want a tax clearance certificate before the wire moves. None of those items is in the LOI. All of them flow from the single word “Asset.”
The asset-versus-stock decision is the most consequential structural choice in a Florida private-company sale, and it is the choice founders most consistently treat as a tax question and lose. Tax matters. But tax is one of five categories the decision actually turns on, and in Florida lower-middle-market deals it is often not the deciding one. Founders who run the framework before the LOI — not after — preserve negotiation leverage.
The structure choice is a license, lease, customer, liability, and tax decision — in that order most of the time
The default mental model treats the choice as binary on tax. Asset deal — buyer wins on basis step-up and ring-fenced liabilities, seller loses on a second layer of tax. Stock deal — seller wins on capital gains treatment, buyer loses on inherited liabilities. Both halves are true and both halves miss most of what is actually happening. The structure choice determines what transfers automatically, what requires a third-party consent, what the buyer can exclude, what survives closing as the seller’s problem, and what triggers a tax bill on top of the negotiated price. In Florida, where regulatory licensing is heavy and Chapter 542 non-compete enforcement is strong, the non-tax categories often dominate. The framework runs through five categories. Each, in the wrong industry, can flip the structure.
First, the license transfer question
Florida regulates more occupations than most founders realize. The Department of Business and Professional Regulation administers licenses for construction, real estate, cosmetology, veterinary, accounting, and dozens of others. The Division of Alcoholic Beverages and Tobacco licenses bars, restaurants, breweries, and distributors. The Agency for Health Care Administration regulates assisted-living, home-health, and clinical-lab operations. In nearly every one of these regimes, the license is held by the licensed entity. In an asset sale, the buying entity is a different entity. The license does not move with the assets. The buyer has to apply, qualify, and clear background screening before the new entity can operate — sometimes weeks, sometimes months, sometimes never if the buyer’s qualifying individual cannot meet Florida residency or experience requirements.
In a stock sale, by contrast, the licensed entity does not change. The same FEIN, the same Sunbiz registration, the same license number continues to operate. The licensing authority is notified of the change in control and, in some categories, requires a re-fingerprint of the new owners. The continuity is preserved. For Florida HVAC, plumbing, electrical, roofing, and general contracting targets — all of which sit under the Construction Industry Licensing Board — the difference between an asset sale (qualifier transfer, possible loss of license for six months, no work in the interim) and a stock sale (notice filing, business continues) is the entire deal. The structure choice is not a tax question in those industries. It is whether the buyer can operate on day one.
Second, the lease and contract assignment question
Commercial leases in Florida almost universally contain anti-assignment clauses requiring landlord consent on a transfer of the tenant’s interest. In an asset sale, the lease is assigned to the buyer, and the landlord’s consent is required. The landlord knows it, the buyer knows it, and the broker who placed the tenant five years ago knows it. The consent is negotiated. The landlord wants a new personal guaranty, an increased security deposit, sometimes a rent reset to market, and sometimes a shortened term. The seller has lost negotiation leverage by the time the LOI is signed. In a stock sale, the lease often does not require consent at all — the tenant entity has not changed — and in any case the landlord’s leverage is materially weaker.
The same dynamic plays out across the contract portfolio. Master services agreements, software licenses, distribution agreements, franchise agreements, and equipment leases often contain change-of-control or anti-assignment clauses. In an asset sale, each one is assigned, each one needs consent, and each counterparty gets a free option to renegotiate — or to terminate. The Florida home-services and distribution markets in particular have concentration in the top two or three accounts, and a single “we don’t consent to assignment” letter from a large customer can move the LOI price by ten percent. In a stock sale, change-of-control clauses still bite — but the contract list is shorter, the assignment language usually does not trigger, and the seller has more control over the disclosure timing.
Third, the customer-continuity and goodwill question
Even where assignment clauses are absent or weak, customer continuity is materially better in a stock sale. The customer keeps writing checks to the same payee. The accounts-payable file at the customer does not need to be updated. The W-9 on file does not need to be re-collected. The vendor master in the customer’s ERP does not need to be set up new. In Florida service businesses with monthly recurring billing — pest control, lawn care, pool service, IT managed services — the friction of an asset-sale payee change can cost a recoverable percentage of the customer base in the first ninety days post-closing. The buyer prices that risk. The seller pays for it through a working-capital adjustment, an earnout, or a price reduction. In a stock sale, the friction is near zero. The customer never knows the deal happened unless the buyer tells them.
Fourth, the successor liability question
Florida courts apply the traditional rule on asset-sale successor liability — the buyer takes the assets free of the seller’s liabilities — subject to four exceptions: express assumption, de facto merger, mere continuation, and fraudulent intent. The de facto merger and mere continuation exceptions are litigated more aggressively in Florida than founders expect, particularly where the buyer retains the seller’s workforce, location, and name, and the seller dissolves shortly after closing. That risk is priced — broader indemnification, larger escrow, longer survival. The buyer’s asset-sale “clean break” is dirtier in practice than the LOI assumes.
The reverse is also true. In a stock sale, every liability the seller ever had — including liabilities the seller does not know about — comes with the entity. Buyer-side diligence is more expensive. The buyer demands deeper reps, deeper escrows, longer indemnification tails. A founder who chose stock for tax reasons may find that the indemnification erosion eats most of the tax savings.
Fifth, the tax question — which still matters, just not in isolation
The tax outcome differs by the seller’s entity. A Florida S-corp or LLC selling assets is taxed once at the owner level, mostly at long-term capital gains rates, with ordinary-income recapture on depreciated assets. A C-corp selling assets is taxed twice — once at the corporate level, again at the shareholder level when proceeds are distributed. A stock sale of either entity is taxed once. The double-tax penalty on a C-corp asset sale can run fifteen to twenty points of the price.
The buyer wants the basis step-up that comes with an asset deal under § 197. The negotiation lever is the § 338(h)(10) election (for S-corp stock sales) or the § 336(e) election — both let the parties treat a stock sale as an asset sale for tax purposes while preserving the non-tax benefits of a stock sale (license continuity, lease continuity, customer continuity, narrower successor-liability exposure). The buyer pays a gross-up to the seller equal to the seller’s incremental tax burden from making the election, in exchange for the basis step-up. When the buyer’s present value of the step-up exceeds the seller’s incremental tax cost, both sides are better off. Cornell’s overview is a useful primer (see Cornell LII on asset sale).
How to run the framework before the LOI
The decision should be made in writing, on a single page, before the LOI is countersigned. Run each of the five categories. License: does the target operate under a Florida regulatory license that does not transfer, and if so, what is the qualifying-individual lead time? Lease and contracts: pull the lease, the top ten customer agreements, and the top five vendor agreements, and read the assignment clauses. Customer continuity: estimate the monthly recurring revenue at risk in a payee change. Successor liability: identify the contingent liabilities (product, environmental, employment, tax) that would worry a litigant. Tax: have the CPA model the after-tax-to-seller delta between asset and stock, including the § 338(h)(10) gross-up math if the entity is an S-corp.
The output of the framework is rarely a clean preference. It is a list of trade-offs and a price. The price is the LOI lever. A Florida HVAC seller with a CILB-licensed entity, a long-term lease with a difficult landlord, and an S-corp election should not accept an asset-sale LOI without a price premium that compensates for the license-transfer risk and the consent-grind. A C-corp seller with no regulatory license, a short-term lease, and high customer-portability should not refuse an asset-sale LOI without a clear-eyed view of the tax cost. The structure is a negotiation. Treating it as a tax footnote concedes the negotiation before it starts.
The deeper point — one I keep returning to in seller-friendly vs. buyer-friendly deal terms and on the broader M&A practice page — is that the LOI is where the leverage lives. By the time the definitive agreement comes around, the structure is fixed. Founders who pre-negotiate structure on a single sheet of paper, with their counsel, do better on every category that follows. The simple merger agreement template we keep on the site is built to surface those categories in plain language.
If you are sitting on an LOI with a structure line you have not pressure-tested, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
— John
