Before you talk about price in detail, you and the buyer have to agree on what is actually being sold. Almost every business sale is structured one of two ways, and the choice drives your taxes, your risk, and how much of your proceeds you keep.

In an asset sale, the buyer purchases specific assets of the business, such as equipment, inventory, customer relationships, and goodwill, and usually assumes only the liabilities it agrees to take. In an equity sale, the buyer purchases the ownership of the company itself, meaning the stock of a corporation or the membership interests of an LLC, and the entity continues to own everything and owe everything it did before, now under new ownership.

Sellers and buyers tend to want opposite structures, and understanding why puts you in a better position to negotiate. We cover this trade-off in depth in our guide on asset sale versus stock sale for Maryland sellers, and the short version is below.

A well-run sale follows a predictable path. Knowing the sequence helps you keep leverage, protect confidentiality, and avoid the delays that kill deals.

1. Prepare and value the business

Get your financials, contracts, leases, corporate records, and tax filings organized before you go to market, because a buyer’s diligence will test all of them. This is also the time to fix housekeeping problems, such as a missing operating agreement or out-of-date corporate minutes, and to confirm who has authority to approve the sale under your governing documents. A clean set of books supports your price and your credibility.

2. Protect confidentiality with an NDA

Before you share sensitive information, have the prospective buyer sign a non-disclosure agreement. A leak that your business is for sale can unsettle employees, customers, and suppliers, so confidentiality is not a formality.

3. Negotiate a letter of intent

The letter of intent or term sheet sets the price, the structure, and the major deal points. Most of the substance is decided here, so it is the highest-leverage moment in the process even though the letter is usually non-binding except for a few provisions such as exclusivity and confidentiality. This is the right time to lock in whether the deal is an asset or equity sale and the broad allocation of price.

4. Survive due diligence

The buyer now investigates the business in detail, the mirror image of the work a buyer does in our Maryland due diligence guide. Expect requests covering financial statements, tax returns, contracts, leases, intellectual property, employee matters, litigation, and licenses. Problems found here can reduce the price or add escrow holdbacks, so the cleaner your records, the better the outcome.

5. Sign the definitive purchase agreement

The asset purchase agreement or equity purchase agreement is the binding contract. It contains the price and payment terms, the allocation, your representations and warranties, the indemnification and escrow terms, the non-compete, and the closing conditions. This document, not the letter of intent, governs your real obligations and exposure.

6. Obtain third-party consents

Many deals require consents before they can close. Common ones include the landlord’s consent to assign your commercial lease, lender consents and lien releases, franchisor approval for a franchised business, and consents under key customer or supplier contracts that restrict assignment or change of control. Identify these early, because they often set the timeline.

7. Close and fund

At closing, the documents are signed, the purchase price is paid or partly financed, and ownership transfers. The closing mechanics differ between an asset sale and an equity sale, but in both cases the money and the documents move together.

8. Handle the post-closing items

After closing you still have work to do: meet any transition or consulting commitments, file the tax forms the sale requires, including Form 8594 in an asset sale, file final Maryland sales and use tax and withholding returns if you are winding the entity down, and either transfer the entity to the buyer or dissolve it properly if you sold the assets and are closing the company.

The biggest variable in what you keep is how the sale is taxed, and that turns heavily on your entity type. The goal for most sellers is a single level of tax and as much capital gain treatment as possible, because long-term capital gain is taxed at lower federal rates than ordinary income.

The federal picture

At the federal level, gain on goodwill and most capital assets held more than a year is long-term capital gain, taxed at preferential rates. But not all of the gain is capital. Gain attributable to depreciation recapture on equipment and other personal property is generally taxed as ordinary income under Section 1245, gain attributable to inventory is ordinary, and recapture on real property under Section 1250 carries its own treatment. Higher earners may also owe the 3.8 percent net investment income tax. Your entity type then determines how many times that gain is taxed.

The Maryland layer

Maryland adds a second tax that many sellers underestimate, because Maryland does not give capital gains a lower rate. Both short-term and long-term gains are taxed as ordinary income at Maryland’s graduated rates, which currently run from 2 percent up to 6.5 percent under Tax-General Section 10-105, on top of your county’s local income tax, which can reach 3.3 percent depending on the county. Beginning in tax year 2025, Maryland also imposes an additional 2 percent surtax on net capital gains when your federal adjusted gross income exceeds 350,000 dollars, with limited exclusions, as the Comptroller explains in Technical Bulletin 58. A large one-time gain from selling a business can easily push you into the highest brackets and trigger the surtax, so model the combined federal and Maryland number before you settle on price. Choosing the right entity and tax treatment up front is exactly the kind of planning we cover in our LLC versus corporation tax guide and our S corp election guide.

In an asset sale, you and the buyer have to divide the total price among the assets being sold, and you each report that division to the IRS on Form 8594 under Section 1060. The allocation is not a formality. It decides how much of your gain is taxed as capital gain and how much is taxed as ordinary income, and it directly changes your after-tax proceeds.

Section 1060 uses a residual method that assigns the price across seven classes of assets in order, with goodwill at the end. The class an asset falls into determines its tax character.

The tension is straightforward. As the seller, you generally prefer more of the price in goodwill, which is capital gain, and less in inventory and in equipment subject to recapture, which are ordinary. The buyer often prefers the opposite, because dollars allocated to equipment and to certain intangibles can be written off faster, while goodwill is amortized over 15 years. Because both sides must report the same numbers, the allocation gets negotiated and written into the purchase agreement, where it belongs.

You do not always have to recognize the entire gain in the year of sale. If part of the price is paid in a later year, for example through seller financing or an earnout, the installment method under Section 453 generally lets you report the capital gain as you receive the payments rather than all at once. Spreading the gain can keep you out of the highest brackets and smooth both the federal tax and the Maryland tax, including the capital gains surtax.

The installment method has real limits, and they matter:

• Depreciation recapture is not deferred. The ordinary income from recapture is generally taxed in full in the year of sale, even though you have not yet collected the deferred payments.
• Inventory and certain items do not qualify for installment reporting.
• Large installment obligations can carry an interest charge under the related rules, which reduces the benefit at higher dollar levels.
• Seller financing means you are the lender. If you finance part of the price, you take on the buyer’s credit risk, so the promissory note, the security interest in the business assets, personal guaranties, and the default remedies need to be drafted to protect you. If the buyer later stops paying, you are back in a breach of contract posture, and a weak note makes recovery harder.

The IRS explains the mechanics in Publication 537, but whether an installment structure helps you, and how to secure it, is a planning decision to make before the deal is papered.

If your business is a domestic C corporation, the sale of your stock may qualify for one of the most valuable breaks in the tax code: the Qualified Small Business Stock exclusion under Section 1202. When the requirements are met, a noncorporate owner can exclude a large portion, and sometimes all, of the gain on the sale of qualifying stock from federal income tax.

QSBS is technical, and the headline requirements include that the issuer is a domestic C corporation, that the stock was acquired at original issuance, that the company met a gross asset ceiling, that it uses most of its assets in an active qualifying business, and that certain service businesses are excluded. It applies to stock, so an LLC or S corporation interest does not qualify unless the history lines up, which is one more reason entity choice years before a sale can matter at exit.

The 2025 federal tax law expanded QSBS for qualifying stock issued to and acquired by the taxpayer at original issuance after July 4, 2025, which made the planning more attractive:

Because Maryland begins its calculation from your federal adjusted gross income, gain that is excluded federally under Section 1202 is generally also excluded for Maryland. QSBS qualification is detailed and unforgiving, so if there is any chance your C corporation stock qualifies, confirm it well before you sign, not at closing.

Beyond the federal tax structure, Maryland has its own rules that can surprise a seller who relies on a generic checklist. These are the ones that come up most often.

Maryland still has a bulk transfer law

Most states repealed their bulk sales statutes, but Maryland kept one. Title 6 of the Commercial Law Article applies to a transfer, outside the ordinary course of business, of a major part of the inventory of a business whose principal activity is selling merchandise from stock, such as a retailer, wholesaler, or manufacturer. It requires notice to the seller’s creditors and gives the Comptroller priority on the sale proceeds for unpaid sales and use taxes. The obligations fall largely on the buyer, but the practical effect on you as the seller is that the buyer’s counsel will often insist on tax clearances and may hold back part of the price until your Maryland tax accounts are confirmed current.

Clear your Maryland tax accounts early

Because of the bulk transfer rules and ordinary buyer caution, open Maryland tax issues can stall or shrink a deal. Resolve any outstanding sales and use tax, employer withholding, or other Maryland obligations before you go to market. If your business has fallen behind, our tax team handles state and federal tax controversies and can help you get current so a tax problem does not derail your sale.

Nonresident withholding if the deal includes real estate

If the sale includes Maryland real property and you are a nonresident, the settlement agent must withhold tax from your proceeds at recording under Tax-General Section 10-912. As of July 1, 2025, the rate is 8.75 percent for nonresident individuals, estates, and trusts, and 8.25 percent for nonresident entities, generally applied to the total property sale payment. You can apply to the Comptroller for a full or partial exemption on Form MW506AE at least 21 days before closing if your actual gain is lower than the default withholding. The Comptroller’s nonresident sale of property guidance sets out the details. If your sale is purely a sale of business assets with no real estate, this does not apply.

Keep your entity in good standing, then wind it down correctly

Confirm your entity is active and in good standing before you sign, because an entity that has fallen out of good standing with SDAT can have trouble signing and closing. You can check status through the Maryland Business Express entity search. After an asset sale, if you are closing the company rather than transferring it, follow the proper steps to dissolve the LLC or corporation, file final returns, and avoid lingering tax and report obligations.

The non-compete you sign is treated favorably

Buyers nearly always ask the seller to sign a covenant not to compete, because they are paying for goodwill and do not want you reopening across the street. A non-compete given as part of selling a business is treated more favorably, and enforced more readily, than an employment non-compete, as long as its scope, geography, and duration are reasonable in relation to what the buyer bought. We explain the broader landscape in our guide on whether non-compete agreements are enforceable in Maryland. Because these terms limit what you can do next, negotiate them as part of the overall deal.

Price gets the attention, but the terms below decide how much of that price you actually keep and how much risk you carry after closing. Review each one closely.

• Representations and warranties. These are your binding statements about the business, its financials, contracts, taxes, and compliance. Overbroad reps expand your exposure, so they should be accurate, appropriately qualified by knowledge and materiality, and supported by clear disclosure schedules.
• Indemnification. This is your promise to cover the buyer for certain post-closing losses. Negotiate caps on your total exposure, baskets or thresholds before claims can be made, and survival periods that limit how long you remain on the hook.
• Escrow or holdback. Buyers often hold back part of the price to secure indemnity claims. Negotiate the amount, the release timing, and the conditions, so your money is not tied up longer than necessary.
• Earnout. If part of the price depends on future performance, define the metrics, the measurement period, and how the business will be run during it, because vague earnouts are a frequent source of post-closing disputes.
• Non-compete and non-solicit. As covered above, keep the scope reasonable and tied to the goodwill being sold.
• Transition services. If you are agreeing to help after closing, define the scope, duration, and pay, so a handshake commitment does not become an open-ended obligation.
• Allocation of purchase price. Lock in the Form 8594 allocation in the agreement so both sides report consistently and you preserve your intended tax treatment.

• Signing a letter of intent before getting tax advice. Structure and allocation are hardest to fix after the term sheet, when leverage has already shifted to the buyer.
• Ignoring the Maryland tax bite. Sellers who plan only for federal capital gains rates are surprised by Maryland taxing the gain as ordinary income and by the 2 percent surtax at higher income levels.
• Letting the buyer dictate the allocation. The Form 8594 split is negotiable and can move real dollars between capital gain and ordinary income.
• Overlooking the C corporation double tax. An asset sale by a C corporation can be taxed twice, and there are planning options that should be considered before agreeing to structure.
• Weak seller financing terms. Financing part of the price without a strong note, security, and guaranties leaves you exposed if the buyer stops paying.
• Agreeing to broad reps and an uncapped indemnity. Your post-closing risk can dwarf the holdback if the indemnity is not properly limited.
• Leaving entity and tax housekeeping for last. Good standing problems and unresolved Maryland tax accounts can delay or shrink a deal at the worst possible time.

It depends on your entity type and tax position, and the seller and buyer usually want opposite things. Sellers generally prefer an equity sale, meaning a sale of stock or LLC membership interests, because it is usually a single layer of tax, most of the gain is capital gain, and the buyer takes the entity with its liabilities. Buyers generally prefer an asset sale because they get a stepped-up basis to depreciate or amortize, can choose which assets and liabilities to take, and avoid unknown history. The gap between the two is mostly about taxes and risk, and it is negotiable. For a C corporation, an asset sale can trigger two levels of tax, which makes structure especially important. Decide on structure before you sign a letter of intent, not after.

Federal tax depends on your entity type and how the purchase price is allocated. Gain on goodwill and most capital assets held more than a year is long-term capital gain, while gain attributable to depreciation recapture, inventory, and certain other items is ordinary income. Maryland then taxes the gain too, and here is the catch: Maryland does not give capital gains a preferential rate. Both short-term and long-term gains are taxed as ordinary income at Maryland’s graduated rates, currently from 2 percent up to 6.5 percent, plus your county’s local income tax. Beginning in tax year 2025, Maryland also imposes an additional 2 percent surtax on net capital gains for taxpayers whose federal adjusted gross income exceeds 350,000 dollars, subject to certain exclusions. Plan for the combined federal and Maryland tax before you agree on price and structure.

In an asset sale, the total price has to be divided among the assets being sold, and both sides report that allocation to the IRS on Form 8594 under Section 1060. The allocation drives the tax. As the seller, you generally want more of the price assigned to goodwill and other capital assets, which produce capital gain, and less assigned to equipment subject to depreciation recapture and to inventory, which produce ordinary income taxed at higher rates. The buyer often wants the opposite, because faster write-offs help the buyer. Because the buyer and seller must report consistent figures, the allocation is negotiated and written into the purchase agreement. Getting it right can change your after-tax proceeds significantly, so it should be modeled before closing.

Sometimes. If you receive part of the purchase price in a later year, for example through seller financing or an earnout, the installment method under Section 453 may let you report the capital gain as you receive the payments rather than all at once in the year of sale. This can keep you in lower brackets and smooth the Maryland tax, but it does not apply to everything. Depreciation recapture is generally taxed in full in the year of sale even if you have not been paid yet, inventory does not qualify, and very large installment obligations can carry an interest charge. Seller financing also means you are taking on the credit risk of the buyer, so the note, security, and default terms matter. This is a planning decision to make before the deal is structured.

Yes, and that surprises many people because most states repealed theirs. Maryland still has a bulk transfer law in Title 6 of the Commercial Law Article. It generally applies to a transfer, outside the ordinary course of business, of a major part of the inventory of a business whose principal activity is selling merchandise from stock, such as a retailer, wholesaler, or manufacturer. The law puts notice obligations on the buyer, requires notice to the seller’s creditors, and gives the Comptroller priority on the sale proceeds for unpaid sales and use taxes. The practical effect for a seller is that the buyer’s lawyer will often require tax clearances and may hold back part of the price until your Maryland tax accounts are confirmed current, so resolve any open sales and use tax, withholding, or other Maryland tax issues early.

It can, but only if the sale includes Maryland real property and you are a nonresident. Under Tax-General Section 10-912, when a nonresident sells Maryland real estate, the settlement agent must withhold a percentage of the proceeds and pay it to the state before the deed is recorded. As of July 1, 2025, the rate is 8.75 percent for nonresident individuals, estates, and trusts, and 8.25 percent for nonresident entities, generally applied to the total property sale payment. You can apply to the Comptroller for a full or partial exemption using Form MW506AE at least 21 days before closing if the actual gain is lower than the default withholding. If your business sale does not include real estate, this withholding does not apply, but if you have relocated out of state and the deal includes a building or land, plan for it.

Yes, and a non-compete given as part of selling a business is treated very differently from one imposed on an employee. When you sell the goodwill of your business, the buyer is paying in part for the assurance that you will not immediately open a competing shop next door and take the customers back. Maryland courts generally enforce a reasonable covenant not to compete that is ancillary to the sale of a business, judged on whether its scope, geography, and duration are no broader than needed to protect what the buyer bought. These sale-of-business covenants are scrutinized less strictly than employment non-competes. Because the terms are negotiable and directly affect what you can do next, the non-compete, along with any non-solicitation and confidentiality terms, should be negotiated as part of the overall deal.

Qualified Small Business Stock, or QSBS, under Section 1202 can let a noncorporate owner exclude a large share of the gain on the sale of stock in a qualifying domestic C corporation from federal tax. It applies only to C corporation stock, so it does not cover an LLC or S corporation interest unless that history lines up, and the company and stock must meet detailed requirements, including the active business and gross asset tests. The 2025 federal tax law expanded the benefit for qualifying stock issued to and acquired by the taxpayer at original issuance after July 4, 2025, with a tiered exclusion of 50 percent at three years, 75 percent at four years, and 100 percent at five years, a per-issuer cap raised to 15 million dollars, and a higher company asset ceiling. Stock acquired earlier still follows the prior five-year, 10 million dollar rules. Because Maryland starts from federal adjusted gross income, gain excluded federally is generally also excluded for Maryland, but QSBS qualification is technical and should be confirmed well before a sale.

A business broker can help you find a buyer and agree on a price, but a broker does not represent your legal and tax interests in the deal. The structure, the purchase agreement, the price allocation, the representations and warranties you stand behind, the indemnification and escrow terms, and the Maryland tax and filing steps are where sellers gain or lose real money and take on real risk long after closing. A focused legal and tax review usually costs a small fraction of the deal and frequently pays for itself by improving the structure, narrowing your post-closing exposure, and preventing a surprise tax bill. The best time to involve counsel is before you sign a letter of intent, because that is when most of the important terms are actually decided.

Start with three things before you go to market. First, get your records in order, since a buyer’s due diligence will test your financials, contracts, leases, corporate records, and tax filings, and clean records protect both your price and your credibility. Second, confirm your entity is active and in good standing with the Maryland Department of Assessments and Taxation, because an entity that has fallen out of good standing can have trouble signing and closing. Third, get a structure and tax analysis early, so you understand your likely after-tax proceeds and can negotiate price and terms with that number in mind. For owners in Rockville, Montgomery County, and the surrounding area, lining these up before a buyer appears puts you in a far stronger negotiating position.