How Tax Obligations Change with Ownership Transfers

Because different business structures involve different processes to transfer business ownership, the tax implications can vary significantly. In this article, we cover the change of ownership processes for varying business structures, the tax consequences of those changes, and what you should know before you finish the process.

How to Transfer Business Ownership

Knowing how to transfer business ownership begins with understanding what property a business owns and what it means to transfer that property. Those things depend on how the company and transfer are structured.

What It Means to Transfer Business Ownership

What must one do to transfer business ownership? Such a transfer can involve selling ownership interests, business assets, or both. The assets may include the business's:

• Name

• Intellectual property

• Real property

• Equipment

• Existing contracts

• Client information

The transfer can also include intangible items, like the goodwill associated with the company.

Common for-profit business structures include:

• Sole proprietorships

• Partnerships

• Limited liability companies (LLCs)

• Corporations

These business types offer different ownership interests, which you must sell or dispose of to transfer the property.

Sole proprietorships

Because sole proprietorships are not independent legal entities, you cannot sell the business itself. Typically, selling your interest in a sole proprietorship involves transferring some or all of the company's assets.

Partnerships

Although partnerships are more formal than sole proprietorships, partnerships are not independent entities, and you cannot sell them. However, you can sell partnership interests.

Corporations

Shareholders own corporations, which come in two forms: S corporations and C corporations. S corporations enjoy tax advantages but must not:

• Have more than 100 shareholders

• Offer more than one class of stock

• Have shares owned by partnerships or other corporations

Both corporation types involve organizational documents that should lay out the process for selling corporate assets or the corporation itself. For corporations, your corporate interest is your stock.

LLCs

LLCs typically require registration with the secretary of state, making them a separate legal entity. One or more "members" own LLCs. Under federal law, you can elect to treat LLCs like any of the other for-profit business structures. The transfer process may vary based on the number of LLC members. When you transfer an LLC, follow any processes established in the LLC's Articles of Organization and operating agreement.

Transfer Reporting Requirements

When a corporation, partnership, or LLC that chooses to be treated as one of those entities transfers ownership, the business's "responsible party" changes. Responsible parties vary by entity type and specific title in an organization. Within 60 days of the transfer, submit Form 8822-B to the IRS to notify it of the change. The business may also be required to comply with the beneficial ownership information (BOI) reporting requirements of the Financial Crimes Enforcement Network (FinCEN).

Tax Consequences of Selling a Business

Often, a change of ownership involves more than one transaction and both ownership interests and assets. To determine the tax consequences of selling the business, you need to know your gains, losses, and tax rate.

Computing Gains and Losses

To determine gains or losses, you need to know your tax basis. Your starting basis is typically the amount you paid to acquire the property. Many events change your basis. For example, you should decrease your basis in corporate stocks if you receive additional stock through nontaxable dividends or stock splitting. Amortization and depreciation, which involve deducting costs from your taxable business income over a span of years, can also modify your basis.

To compute your basis at the time you sell, you should:

• Identify the actual cost of the property

• Consult past tax returns

• Identify if and how much you have depreciated or amortized the property

• Subtract what you have depreciated or amortized from the original cost of the property

Now, you have the relevant tax basis for the sale—your "adjusted basis." To figure gains or losses for tax purposes, subtract your adjusted basis from the purchase price.

Business Assets

The tax treatment of a business's assets depends on whether the Internal Revenue Service (IRS) classifies them as:

• Capital assets—taxed as capital gains

• Depreciable real property used in the business—taxed as capital gains

• Property held for or to facilitate customer sales—taxed as ordinary income

Capital assets include most property you own or use for personal or investment purposes. Ownership interests in the varying business structures qualify as capital assets.

Property businesses held for sale or to facilitate sales may include:

• Inventory

• Equipment

• Merchandise

• Other materials used in the business

You compute gains or losses separately for each asset.

Selling Partnership Interests

Identifying the tax implications of buying out a business partner begins with computing the basis of the partnership interest, which can be complicated and involve some subjectivity.

The basis can increase when the partner:

• Contributes to the partnership

• Assumes partnership liabilities

• Receives partnership income

It can decrease based on:

• Distributions of money or property

• Partnership losses

• Partnership expenses

Once you have a basis, you can calculate the tax consequences of the transfer of the partnership interest.

Selling Corporate Interests

Corporate business interests are company stocks. As capital assets, C corporation stocks are taxed as capital gains. Sales of S corporation stocks can avoid any tax on gains—if the shares count as qualified small business stock (QSBS). For shares to be eligible, the business must:

• Have never owned assets totaling more than $50 million

• Be in active status

• Involve manufacturing, retail, technology, or selling wholesale goods

If you sell QSBS, you avoid gains up to the higher of $10 million or 10 times your adjusted basis.

Selling LLC Membership

When you transfer ownership of an LLC, the tax consequences align with how you elected to treat your business for tax purposes. That means that, for LLCs treated as S corporations, shares may count as QSBS.

Planning for a Change of Ownership

One of the primary strategies in an ownership sale is carefully allocating the purchase amount between assets and ownership interests since they are subject to potentially differing rates and processes. Another involves dividing exchanges up over multiple years in a piecemeal transfer process. Ultimately, the best strategy depends on the specifics of the transaction and the business, and consulting a tax expert to help structure the sale may save you substantial sums in tax liability.

Frequently Asked Questions (FAQs)

What Is Required When the Ownership of a Company Is Transferred?

When you transfer ownership, you sell or otherwise dispose of ownership interests and business assets. You should ensure all property is accounted for in the exchange.

How Do I Notify the IRS of a Business Change of Ownership?

Submit Form 8822-B to notify the IRS of a change in ownership.

In addition, businesses may need to report the change of ownership to the Financial Crimes Enforcement Network (FinCEN) to comply with the recent beneficial ownership information (BOI) reporting requirements. It may be beneficial to consult a tax attorney or accountant to ensure that all required documentation is complete and accurate whenever a business change of ownership occurs.

What Is the Capital Gains Tax Rate for a Business?

In 2025, the capital gains tax rates are 15% for taxable amounts over $48,350 for single filers, $96,700 for married filing jointly, and $64,750 for heads of household. The rate grows to 20% for taxable amounts over $533,400, $600,050, and $566,700, respectively.

What Are the Tax Implications of Selling an S Corporation?

When you sell an S corporation, you sell its shares and pay capital gains tax. If those shares count as qualified small business stock (QSBS), you may be able to sell them without paying any tax on your gains, up to $10 million. If not QSBS, you typically pay capital gains tax.

Resources:

• IRS, About Form 8822-B, Change of Address or Responsible Party - Business, link.

• IRS, Instructions for Form 4562 (2023), link.

• IRS, Publication 541 (03/2022), Partnerships, link.

• IRS, Publication 544 (2023), Sales and Other Dispositions of Assets, link.

• IRS, Publication 550 (2023), Investment Income and Expenses, link.

• IRS, Publication 551 (12/2022), Basis of Assets, link.

• IRS, Sale of a business, link.

• IRS, S corporations, link.

• IRS, Topic no. 409, Capital gains and losses, link.

• Small Business Administration, Qualified Small Business Stock: What Is It and How to Use It, link.

• Tax Foundation, 2025 Tax Brackets, link.