How are you handling sellers who insist on a stock sale for QSBS reasons?

 profile

May 08, 2026

by a searcher from Carnegie Mellon University in Denver, CO, USA

Running into a situation where the seller's C corp qualifies for Section###-###-#### QSBS) and they're pushing hard for a stock sale to capture the gain exclusion. Totally understand the math on their side, potentially millions in tax savings. But as the buyer, I'd much rather do an asset purchase for the usual reasons: stepped-up basis, no inherited liabilities, cleaner diligence. For this deal specifically, there is a pending litigation and that is already a red flag for a stock sale. For those who've been here before: - How did you bridge the gap? Did you gross up the price, or hold firm on structure? - How do you think about the rep & warranty insurance angle when you're forced into a stock deal? - Any creative structures (F-reorg, hybrid) that actually worked in a search fund context? Would love to hear stories or frameworks you've used. Thank you in advance.
1
3
83
Replies
3
commentor profile
Reply by an intermediary
from Duke University in Denver, CO, USA
With the potential for pending litigation, I would recommend on not going with a stock sale. F-reorg will still make it a stock sale for legal purposes, but an asset sale for tax purposes, so that does not solve your challenge here. Rep & warranty is a tool to use, but I also like the idea if you end up going with a stock sale, to push for a large amount in Escrow that more than covers the potential pending litigation. Give yourself a lot of buffer here. (Not legal advice, definitely talk with a lawyer further on this)
commentor profile
Reply by a searcher
from Howard Payne University in Austin, TX, USA
Talk to your M&A or business attorney about Section 338(h)(10), which permits the seller to get the equity-sale benefits while you get the asset-sale benefits. Both parties have to mutually agree, and it's an election that needs to be made jointly. It's an elegant solution if you qualify and everyone agrees.
commentor profile
+1 more reply.
Join the discussion