What is the difference between an asset deal and a stock deal?

In a stock deal, the buyer purchases the target company's shares, so it gets the whole legal entity: all assets, contracts and liabilities, including unknown ones such as future lawsuits. It is simpler to execute because contracts and licenses usually stay with the company. In an asset deal, the buyer purchases specific assets and assumes only the liabilities it agrees to, which limits risk but can require transferring contracts and permits one by one.

The biggest difference is tax. In an asset deal, the buyer records the assets at the purchase price for tax purposes, a step-up in tax basis, so it gets higher tax-deductible depreciation, and in the US goodwill is amortized for tax over 15 years. That lowers future cash taxes. In a stock deal, the tax basis usually carries over; any book write-up creates a deferred tax liability instead.

Sellers often prefer stock deals. If a C-corporation sells its assets, the company pays tax on the gain and shareholders pay tax again when proceeds are distributed. So buyers tend to prefer asset deals and sellers stock deals, and the price reflects that. A Section 338(h)(10) election, available in certain cases such as buying a subsidiary or an S-corp, can give the buyer the tax step-up while legally buying stock.