A buyer of a business often will prefer to purchase assets rather than equity interests in order to, among other things, obtain a step-up in the tax basis of the assets of the business equal to its purchase price. The buyer will then be able to realize the tax benefit of recovering its cost through depreciation and amortization of the assets. Conversely, the seller typically prefers to structure the transaction as a sale of equity interests for both tax and non-tax reasons.
There are several tax rules which operate to treat acquisitions of equity interests as asset purchases (giving the buyer the tax benefit associated with an asset purchase). One such rule is set forth in IRS Rev. Rul. 99-6.
IRS Rev. Rul. 99-6 provides that if a buyer acquires 100% of the membership interests in a multi-member LLC (classified as a partnership for federal income tax purposes), the the buyer will be treated, for federal income tax purposes, as if it purchased all of the assets of the LLC and will receive a cost basis in the assets equal to its purchase price. The purchase price will be allocated among all of the underlying assets of the LLC. The sellers will be treated as selling the membership interests (not the assets) for federal income tax purposes. Such a structure can be a win-win for both the buyer and seller.