Have you ever set up a Qualified Small Business Stock (QSBS) c-corp? Or when would you recommend it over an LLC? I see a clear advantage for a traditional startup with future sale of $20M+, but what about for something with potential to sell for $5-15M? Seems like acquirers of a biz that size usually prefer buying LLC/assets over a c-corp.

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I have never personally set up a QSBS. But I understand there are three main benefits (i) no capital gains tax on stock sale after 5 year holding period, (ii) tax-free rollover of sale proceeds into another QSBS if sold in less than 5 years, and (iii) ordinary loss treatment available if stock sale generates a loss. These are primarily benefits to the initial owners of the QSBS (acquirers of QSBS stock from someone other than the corporation itself do not receive at least benefits (i) and (ii)).

Thinking from the acquirer side, you are correct that they prefer buying LLC (disregarded entity) interests or business assets. That gives them a basis step-up and additional amortization and depreciation. Buying stock does not do so; instead, the buyer takes the basis of the seller and carries it over.

So it sounds like a modeling exercise: model out your tax benefit as an owner selling the stock versus the tax cost of selling all the business assets (sales price minus the depreciated/amortized asset basis). This should point you in the right direction.

I hope this helps.

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That makes sense. Thank you.

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