C-Corporation M&A Strategies

Advanced tax planning for founders and investors. Navigate the "Double Tax" trap, leverage basis step-ups, and structure tax-free reorganizations to maximize net proceeds.

The Double Taxation Trap

In a C-Corporation exit, the structure determines the tax burden. Asset Sales trigger tax at the corporate level and the shareholder level upon distribution. Stock Sales generally trigger only shareholder capital gains. Use the simulator below to compare the net proceeds and visualize the "tax leakage."

Deal Parameters ($ Millions)

$10M $50M $100M
$0M $5M $50M
$0M $2M $20M
21% + State
23.8% + State

Key Insight

At this valuation, the Asset Sale results in significantly higher tax leakage due to the lack of Inside Basis.

Net Proceeds Comparison

Figures in Millions ($)
Stock Sale Net
$36.5M
Asset Sale Net
$28.2M

The Buyer's Lens: Basis Step-Up

Buyers prefer Asset Sales because they can "Step Up" the basis of the acquired assets to the purchase price. This creates a massive tax shield via depreciation and amortization (often over 15 years for intangibles like goodwill).

Strategy: If a buyer insists on an Asset Sale, the seller should calculate the "Gross-Up" price—the higher price needed to match the net proceeds of a Stock Sale.

Why Buyers Pay More for Assets

  • Depreciable basis resets to Fair Market Value (Purchase Price).
  • Goodwill is amortizable over 15 years (Sec. 197).
  • Avoidance of hidden legacy liabilities (legal/tax) inside the target entity.

Buyer's Tax Shield Value (Cumulative)

Based on $50M Allocable to 15-yr Assets

Negotiation Assistant

Target Stock Price: $50.0M
Seller's Tax Drag (Asset Sale): -$8.3M
Buyer's PV of Tax Shield: +$10.5M

Seller Indifference Price:

$62.5M

If the Buyer pays this amount in an Asset Sale, the Seller nets the same as a $50M Stock Sale.

Tax-Free Reorganizations & Structuring

Section 368 allows for tax deferral if the transaction qualifies as a "Reorganization." This usually requires the seller to accept significant equity in the buyer. Explore the common structures below.

✨

QSBS (Section 1202)

Qualified Small Business Stock (QSBS) is the "Holy Grail" of C-Corp exits. It can provide a 100% exclusion of capital gains up to $10M or 10x basis.

✓
Original Issuance: Stock acquired directly from the C-Corp (not secondary market).
✓
5-Year Hold: Must hold stock for at least 5 years before sale.
✓
$50M Asset Cap: Corp gross assets must be under $50M at time of issuance.
*Tip: In an asset sale, QSBS is lost because the Corp sells assets (taxable), then distributes cash. A Stock Sale is required to claim QSBS.
👤

Personal Goodwill

A strategy to bypass corporate level tax in an Asset Sale. The founder sells their "personal reputation/relationships" directly to the buyer, separate from the corporation's assets.

1
No Employment Contract: Founder must not have a non-compete with the C-Corp prior to the deal.
2
Separate Purchase Agreement: Buyer pays Founder directly for goodwill.
3
Valuation: Must be supported by a third-party appraisal.
*Impact: Proceeds from personal goodwill are taxed only once (Capital Gains) to the founder, saving ~21-30% compared to selling corporate goodwill.