Stock sale
A transaction in which the buyer purchases the shares of the company itself, acquiring the entity together with all of its assets and liabilities.
Also called: Share sale · Share purchase · Equity sale
In a share purchase the legal entity does not change — only its ownership does. Contracts, licences, leases, and employment relationships generally continue uninterrupted, because the counterparty is still the same company. That continuity is the structure's main practical advantage, and it matters enormously in businesses whose value sits in contracts, permits, or accreditations that would be difficult or slow to assign.
Sellers usually prefer it for tax reasons, and because it produces a cleaner break: liabilities travel with the entity rather than staying behind. Buyers accept it when the continuity is valuable, when diligence gives them enough comfort about history, or when the price reflects the risk they are taking on.
Because the buyer inherits everything, diligence is heavier and the representations and warranties are broader. Expect more attention to tax history, employment claims, environmental matters, and litigation, and expect the indemnity package — survival periods, caps, escrow — to carry more of the negotiation.
Where sellers get caught
- Underestimating how much more diligence a buyer will run, and how much management time it consumes.
- Change-of-control clauses. Continuity is not automatic where a contract lets a counterparty exit on a change of ownership — check the key ones early.
- Assuming a share sale is always better for the seller after tax. It usually is, but not universally, and not in every jurisdiction.
Common questions
Will a lender fund a share purchase?
Many will, though some lending programmes have specific requirements or preferences. It is worth confirming the buyer's financing is compatible with the structure before it is agreed in the LOI.
Do employees have to be rehired?
Generally no, because their employer entity is unchanged. That continuity is one of the practical reasons buyers accept share deals in people-heavy businesses.
Related terms
Asset sale
A transaction in which the buyer purchases specified assets and assumes specified liabilities, rather than buying the legal entity itself.
Due diligence
The buyer's post-LOI investigation of the business, covering financial, legal, commercial, tax, and operational matters.
Representations and warranties
Statements of fact about the business made by the seller in the purchase agreement, which the buyer relies on and can claim against if untrue.
Purchase price allocation
The agreed split of an asset-sale price across asset classes, which drives the tax outcome for both sides.
Guides that use this term
Where stock sale comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.