Stock Purchase: Preserving Contracts While Accepting Tax Tradeoffs

A stock purchase keeps the target's contracts and licenses intact but inherits its tax history and depreciated asset basis. The operational simplicity comes at a cost—you give up the fresh depreciation deductions available in asset purchases.

You inherit the entity's tax history. A stock purchase means the business continues as-is. That includes its tax attributes, depreciation schedules, net operating losses, and any unreported liabilities. Tax due diligence is critical because you assume exposure for the entity's prior-year positions.

No automatic step-up in basis. The assets inside the entity retain their existing (often partially depreciated) basis. You lose the depreciation restart that an asset purchase provides, unless you make a Section 338(h)(10) election, which is only available for certain corporate targets and requires the seller's consent.

Continuity of contracts and licenses. Stock purchases preserve the entity's existing contracts, permits, and relationships without requiring assignment or consent. This is often the practical reason buyers accept the less favorable tax structure.

The tradeoff: You get operational simplicity and contract continuity, but you pay for it with lower depreciation deductions and inherited risk. A CPA quantifies exactly how much that continuity costs you in after-tax dollars.