How to Transfer Business Ownership
The steps to transfer business ownership depend on your business entity type. A sole proprietor sells assets and walks away, while a corporation transfers shares. Getting the details right, before you sign anything, can save you tens of thousands in taxes and legal fees.
Use this guide to find the steps for your entity type, then review the tax and legal considerations before you proceed.
| Business type | How ownership transfers | Complexity | Key tax consideration |
|---|---|---|---|
| Sole proprietorship | Asset sale only | Low | Asset-by-asset capital gains tax |
| Partnership | Asset sale or interest transfer | Medium | Capital gain or loss on interest transfer |
| LLC | Membership interest or asset sale | Medium to High | Capital gains; treatment varies by tax election |
| S-corporation | Stock transfer | Medium | Pass-through taxation; gains taxed at shareholder level |
| C-corporation | Stock transfer | Medium to High | Potential double taxation on asset sales |
Check out LendingTree’s guide on how to choose the right type of business entity.
4 steps to take before selling your business
Taking some time to plan and get your business finances in order before a sale can maximize value and ensure a smooth transition.
- Appraise your business. Get a professional valuation to determine the business’s market worth. You can find a qualified appraiser through the American Society of Appraisers or the National Association of Certified Valuation Analysts.
- Organize your finances. Update your accounting and organize all financial records, including balance sheets, income statements and tax returns. Buyers may ask to review these records during the due diligence process.
- Improve business performance. Address any operational issues and improve business performance to make it more attractive to buyers.
- Ensure legal compliance. Make sure all of your business permits and licenses are up to date.
How to transfer a sole proprietorship
In a sole proprietorship, there’s no legal separation between you and the business, so you can’t sell the company as a whole. You can sell individual assets, which can include your business name (DBA), contracts, property and client list, but any remaining debts stay with you.
- Establish your business’s overall value and create an itemized list of each asset’s price.
- Write up a sales contract detailing what the buyer is purchasing and have your lawyer review it.
- Check whether state filings are required. You may need to notify your state if you transfer your DBA.
- Dissolve your company after the sale by closing business bank accounts, surrendering your license and ending any other business associations.
Each asset you sell is taxed separately based on how long you’ve held it. Assets held longer than one year are taxed at the long-term capital gains rate (0%, 15% or 20% depending on your income). Consult a CPA before finalizing your asset prices.
How to transfer a partnership
A business partnership is an unincorporated company with two or more owners. You can transfer ownership by adding or removing partners, changing ownership percentages or dissolving the partnership and selling its assets.
- Refer to the partnership agreement to understand how ownership is split and whether it includes a buy-sell provision governing how a partner can sell their interest.
- Hold a meeting with all partners to vote on the transfer, whether that’s selling assets, dissolving the partnership or changing ownership percentages.
- Get a business valuation to determine the company’s value. Your partnership agreement may specify the valuation method to use.
- File all required tax forms, including Schedule K-1 (Form 1065), and any other paperwork required in your state.
Selling a partnership interest generally results in capital gain or loss for each partner. File Form 1065 for the final partnership year and each partner will receive a Schedule K-1 showing their individual share of the gain or loss to report on their personal return.
How to transfer an LLC
A Limited Liability Company (LLC) is a business structure allowed by state law with one or more owners, called members. Selling an LLC is a bit more complicated, so consult an attorney familiar with your state’s rules before proceeding.
- Review the buy-sell details in your LLC’s operating agreement and Articles of Organization.
- Get approval from all members to move forward. Members can sell their interest to the buyer or another member or deny the transaction. If you’re the sole owner, skip this step.
- Get a business valuation if transferring ownership to another member. Your operating agreement may restrict the overall sale price.
- Write a bill of sale outlining what the buyer is purchasing and clarify whether they’re buying 100% ownership or just the business assets.
- File all required IRS forms, including Form 8822-B to change the LLC’s responsible party.
- Draft a new operating agreement and file a new Certificate of Amendment (or similar form) with your state to include the new or updated company members.
An LLC’s tax treatment depends on how it’s elected to be taxed. A single-member LLC is taxed as a sole proprietorship by default, and a multi-member LLC is taxed as a partnership. Transferring membership interest generally triggers capital gains tax for the selling member.
How to transfer an S corporation or C corporation
A business corporation can be classified as a C corporation or an S corporation. The key difference: An S-corp can’t have more than 100 shareholders, has only one class of stock and passes income and losses through to shareholders rather than paying federal income tax at the entity level.
- Read your company’s shareholder agreement or corporate bylaws to understand the requirements for selling your shares.
- Receive approval from the other shareholders and/or the board of directors to transfer a portion or all of your shares.
- Work with a tax advisor on the structure and timing of the sale. Selling stock rather than assets generally results in a lower tax bill for the seller.
For S corporations, gains pass through to shareholders and are taxed at individual capital gains rates with no entity-level federal tax. For C corporations, a stock sale means the seller pays capital gains tax on the difference between their basis and the sale price, while an asset sale triggers two layers of tax. Buyers generally prefer asset sales, while sellers generally prefer stock sales.
See LendingTree’s guide on small business tax rates by business type.
Other ways to transfer business ownership
Leasing your business
If you don’t need cash up front, lease-to-own lets you transfer the business to someone who doesn’t have the capital to buy it outright. The lessee runs the business during the lease term and typically has the option to buy it outright, extend the lease or return control to you at the end.
- Review finances. Assess the financial stability of the potential lessee to confirm they can meet the lease obligations before you commit.
- Set lease terms. Negotiate rent, maintenance responsibilities and operational duties with the lessee.
- Draft a lease agreement. Work with an attorney to create a lease agreement covering terms, duration and insurance responsibilities to protect both parties.
- Create operational guidelines. Provide the lessee with detailed guidelines to maintain your business’s standards during the lease period.
- Hire a lawyer. Lease-to-own contracts are complex. Work with an attorney experienced in business lease agreements to make sure your finances and ownership rights are protected throughout.
Gifting or transferring to a family member
Before gifting or selling a business to a family member, confirm the recipient has the skills and resources to take over operations. If you’re selling, set a price that reflects fair market value. Selling to a related party below market value can draw IRS scrutiny and trigger gift tax issues.
You may need to file a federal gift tax return, but the annual gift tax exemption lets you give up to a set amount per person each year without owing gift tax.
Consider gifting a small stake over time to stay within that limit. For larger transfers, estate planning strategies like a family limited partnership or trust can help minimize the tax burden. Involve your estate planning attorney and a CPA before proceeding.
Tips for a smooth business transfer
A clean handoff protects both you and the buyer. Before you close, make sure you’ve covered these steps:
- Notify stakeholders. Tell customers, vendors, suppliers, employees and independent contractors that the business is changing hands.
- Transfer all accounts. Work with your bank to transfer or close business accounts, and hand over social media profiles, domain registrations and any software subscriptions tied to the business.
- Consider staying on temporarily. Offering a transition period as a consultant or advisor gives the new owner access to institutional knowledge and reduces the risk of disruption.
- Update all legal documents. Confirm that contracts, licenses, permits and ownership records all reflect the new owner before you walk away.
Thinking about buying a business? Check out LendingTree’s guide to buying an existing business.
What happens to loans when I sell my business?
When you sell your business, you must address active loans, lines of credit and invoice factoring contracts. Typically, the buyer assumes responsibility for existing small business loans, but this must be clearly stated in the sale agreement.
Blanket liens can complicate the process. These give lenders a claim on all business assets and must be negotiated with lenders before the sale closes. Consult your attorney or financial advisor to address all financial obligations before you sign anything.
Frequently asked questions
Complexity depends on your entity type. A sole proprietorship or single-member LLC is straightforward with no partner approval required. A multi-member LLC or corporation is more involved, requiring approval from other members or shareholders and compliance with your operating agreement or corporate bylaws.
No — the EIN is tied to the original owner. You’ll need to close your business account with the IRS, and the new owner needs to apply for their own EIN . Exceptions include company mergers, where the main corporation retains its EIN, and S corporation ownership changes, which also don’t require a new EIN.
A business succession plan outlines how ownership and leadership will transfer when you exit the business — whether through a sale, retirement or death. It typically identifies a successor, establishes a valuation method and addresses tax and legal considerations. Having a plan in place before you need it protects the business’s value and reduces disruption for employees and customers.
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