Asset vs. Stock Sale in Dental Transitions

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Know what type of offer may be right for your sale

When purchasing a dental practice, the sale structure can play a large role in how the dental transition will play out. That’s why it’s important for both the buying and selling doctor to know what sale structure is proposed, and the implications, before taking this big step in the process.

The two most common structures include an asset sale and a stock sale. An asset sale is where the buyer purchases the tangible and intangible assets of the practice but not the legal entity.

A stock sale is where the buyer purchases the stock or interest of the seller’s entity and therefore takes on everything owned by the entity (both assets and liabilities). The ownership of the entity as a whole is transferred from the seller to the buyer.

The type of structure impacts the buyer and seller differently from a tax and legal liability capacity, and sometimes there are competing interests on what is “better” for the buyer and seller.

Understanding what you’re buying or selling establishes what needs to be understood as you move through the dental transition process. Asset sales are the most common in dental transitions, but stock sales can occur and are appropriate in certain circumstances.


How do you know the type of sale based on the information you’ve been given?

If it hasn’t been explicitly said, it may be difficult to determine the type of sale that is being offered. While the tax returns or financials won’t give you a clear answer, you may be able to know from a transition proposal or valuation.

Terms That Indicate an Asset Sale

  • Denoting included or excluded assets
  • Inclusion of an asset allocation
  • Debt-free value

Terms That Indicate a Stock Sale

  • Interest/share
  • Buying into the corporation
  • Taking over (buying) liabilities

There are two primary concerns when considering the dental sale structure: tax and legal liability implications.

Tax Implications

In an asset sale, the seller pays taxes based on the allocation of the sales price to the asset. The amount allocated to each asset type determines the overall tax rate.

For tangible items, such as equipment, supplies and non-compete agreements, these are taxed at the ordinary income rate, which is a higher tax rate. For goodwill, patient records and other intangibles, these are taxed at the capital gains rate, a lower tax rate.

The buyer benefits from an asset sale because they can write off 100% of the assets they are purchasing over time, lowering their taxable income. With large tax deductions on the assets, there’s a greater chance for increased cash flow.

The predicament is that although both tangible and intangible assets depreciate, the tangible items have the ability to depreciate faster. Therefore, buyers prefer to allocate more of the purchase price to the tangibles. However, because of the lower tax rate for intangible items, sellers are incentivized to allocate more to the intangibles, and in the end, 70-80% of the overall practice price is typically allocated to intangible assets.

In a stock sale, the seller benefits because all of the sale’s proceeds are taxed at the capital gains rate, potentially resulting in significant tax savings compared to an asset sale. On the other side, the buyer does not benefit from any tax deductions in a stock sale. This is because the individual is simply buying stock or interest in the entity, not the actual assets. 

Legal Liability Implications

In a stock sale, the buyer takes on the corporate entity and all of its history, including the liability. Whatever has happened historically is now to the responsibility of the buyer, which can be a significant risk. Unless stated otherwise in the purchase agreement, the buyer could be taking over any unknown legal liabilities, such as lawsuits from former patients, contract disputes, safety violations, among several others. If an incident happened a month prior to the buyer taking over the practice, this issue falls on the shoulders of the buyer as the new owner.

If the sale is structured as an asset purchase, however, the buyer creates a new entity and only purchases the assets of the practice, not the legal entity. For any incidents that happened prior to the sale, the liability would be on the original owner, and the buyer would be protected. This also allows flexibility when establishing new services and relationships with vendors as opposed to inheriting those of the seller. 

Determining the Sale Structure for You

In order to determine the best sale structure for your transition, the first priority is to take a look at your goals as a buyer or seller and consider your “why” for going down either route. Additionally, have a solid understanding of the sale’s impact now as well as in the future. One structure may sound like the best option—be it for simplicity or efficiency—but that doesn’t mean it will have the same impact in the future.

If the other party presents a sale that isn’t set up in your preferred structure, it’s not a reason to immediately walk away. It’s best practice to have a transition specialist review the options presented and consult based on your unique situation. Our dental transition advisors can walk you through this decision and help set your transition up for success. Contact our team today.