To sell a percentage of your business, you need to work through a specific sequence: confirm your governing documents permit the transfer, value the stake, comply with federal and state securities rules, prepare records for buyer due diligence, negotiate and sign a purchase agreement, close the transaction, and then handle the tax reporting and post-sale filings. Skipping any step can void the sale, trigger liability, or cost you money you did not need to lose.
Start With Your Governing Documents
Before you talk to a single buyer, pull out your LLC operating agreement, corporate bylaws, or partnership agreement and read the transfer provisions. These documents almost always restrict how an owner can sell to an outsider, and a common one is a consent requirement: some or all existing owners must approve before you can transfer your interest. If your agreement requires unanimous consent and one co-owner refuses, the sale stops there until you either resolve the objection or amend the agreement.
Watch for a right of first refusal. This gives your co-owners or the company itself the chance to buy your interest on the same terms a third party has offered, before you can complete the outside sale. You have to deliver written notice of the third-party offer and wait out the response window. It doesn’t kill the deal, but it adds real time.
Two other clauses shape what you can actually offer a buyer. Tag-along rights let minority owners sell alongside you on the same terms, so a buyer who wanted your 30% may find themselves negotiating for a bigger block. Drag-along rights run the other way and let a majority owner force minority holders into a sale. Know which of these apply before you set a price or make representations to anyone.
Value the Stake You’re Selling
Setting a defensible price starts with valuing the whole business, then figuring out what your slice is worth. Professional appraisers generally use three approaches and often blend them.
- The asset-based approach subtracts total liabilities from the fair market value of all tangible and intangible assets. It sets a floor and fits asset-heavy businesses like real estate holding companies or manufacturers.
- The income approach uses discounted cash flow analysis to estimate the present value of expected future earnings, adjusted for risk. It works well for profitable companies with predictable revenue.
- The market approach compares your business to similar companies that recently sold, applying industry multiples to earnings or revenue.
The IRS lays out eight factors appraisers weigh for closely held companies in Revenue Ruling 59-60, covering everything from the company’s history and industry outlook to book value, earning capacity, goodwill, and comparable market prices.1Internal Revenue Service. S Corporation Valuation Job Aid for IRS Valuation Professionals An independent appraisal gives you a number you can defend across the table.
Minority and Marketability Discounts
If you’re selling less than 50%, expect the buyer to push for discounts. A minority interest discount reflects the buyer’s inability to unilaterally control major decisions. A separate discount for lack of marketability reflects that private equity is harder to resell than public stock. IRS data drawn from restricted stock studies show marketability discounts averaging roughly 31% to 33%, with individual cases ranging from about 13% to the mid-40% range depending on risk and methodology.2Internal Revenue Service. Discount for Lack of Marketability Job Aid for IRS Valuation Professionals Combined, the two discounts can knock 30% to 40% or more off a straight pro-rata share of enterprise value. Knowing the range keeps you from accepting an arbitrary haircut.
Your Equity Is a Security
Shares of stock, LLC membership units, and partnership interests all qualify as securities under federal law. Selling any of them triggers the Securities Act of 1933, which requires SEC registration unless an exemption applies. For most private business sales, the exemption is Regulation D, Rule 506(b).
Under Rule 506(b), you can raise an unlimited amount from an unlimited number of accredited investors, plus up to 35 non-accredited investors, as long as you don’t market the offering through general solicitation or advertising.3U.S. Securities and Exchange Commission. Private Placements – Rule 506(b) An accredited investor is generally someone with a net worth over $1 million (excluding a primary residence) or income above $200,000 (or $300,000 with a spouse or partner) in each of the two prior years.4U.S. Securities and Exchange Commission. Accredited Investors If any non-accredited investors are in the deal, you owe them detailed financial disclosures similar to what a registered offering would include.
You then have to file Form D electronically through the SEC’s EDGAR system within 15 calendar days after the first sale.5U.S. Securities and Exchange Commission. Frequently Asked Questions and Answers on Form D A late filing doesn’t automatically destroy the exemption, but the SEC expects a good-faith filing as soon as possible. Your state may also impose its own “blue sky” filing, so check with your state securities regulator.
Get Your Records Ready for Due Diligence
Any serious buyer will want to see the company’s books before signing. Start gathering documents before you begin negotiating so the process doesn’t stall. Plan on producing:
- Profit and loss statements, balance sheets, and cash flow statements for the last three to five years, plus any CPA audit or review reports.
- A current capitalization table showing all owners and percentages, plus any options, warrants, or convertible notes that could dilute ownership.
- Articles of incorporation or organization, bylaws or operating agreement, and every amendment.
- The federal EIN, state tax IDs, and recent federal and state tax returns.
- Material contracts: leases, supplier and customer agreements, loan documents, and anything that could be triggered by a change in ownership.
Buyers typically also ask for intellectual property records, pending or threatened litigation, employee benefit plans, insurance policies, and regulatory permits. Decide early exactly what percentage you’re offering and whether the interest carries voting rights or is strictly non-voting. That distinction changes the buyer’s influence and directly affects price.
Draft the Purchase Agreement
The controlling document is a Stock Purchase Agreement for a corporation or a Membership Interest Purchase Agreement for an LLC. Either way, it should be prepared or reviewed by an attorney who does business transactions.
Price and Payment Terms
The agreement states the exact number of shares or units sold, the total price, and how the buyer will pay. Payment might be a lump-sum wire at closing, or installments over months or years. An installment structure needs a payment schedule, an interest rate on the deferred balance, and clear consequences for a missed payment. Any earnest money deposit should be documented, along with what makes it refundable or not.
Representations, Warranties, and Indemnification
Representations and warranties are the factual statements each party makes: that the seller has authority to transfer, that the financials are accurate, that no undisclosed lawsuits exist, that the buyer has funds to close. If any of these turn out to be false, the other side has a claim.
Indemnification provisions set the remedy. Two numbers to negotiate carefully are the basket and the cap. The basket is the minimum dollar amount of losses the buyer must absorb before you owe anything, which filters out trivial claims. The cap is the maximum total you can owe post-closing, often set as a percentage of the purchase price. Together they limit open-ended liability while still giving the buyer a real remedy.
Taxes on the Sale
Selling equity creates a taxable event. How it’s taxed depends on the entity type, how long you held the interest, and what the company owns.
Capital Gains and the NIIT
If you held your interest more than a year, gain is generally taxed at long-term capital gains rates: 0%, 15%, or 20% for 2026, depending on taxable income and filing status.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses Held a year or less, and the gain is short-term, taxed at your ordinary income rate.
High-income sellers pay an extra 3.8% net investment income tax on top of the capital gains rate. The surtax applies to the lesser of your net investment income or the amount your modified AGI exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).7Internal Revenue Service. Topic No. 559, Net Investment Income Tax Those thresholds are not indexed for inflation, so they pull in more sellers each year.
Partnership and LLC “Hot Assets”
Selling an interest in a partnership, or in a multi-member LLC taxed as a partnership, is generally treated as selling a capital asset.8Office of the Law Revision Counsel. 26 USC 741 – Recognition and Character of Gain or Loss on Sale or Exchange But there’s an exception for “hot assets” — unrealized receivables and inventory. Your share of gain tied to those assets is taxed as ordinary income, regardless of holding period.9Internal Revenue Service. Sale of a Partnership Interest A service business with outstanding client receivables at sale is the typical case. Ask for an asset breakdown before you finalize the price so you can estimate the ordinary income portion.
Qualified Small Business Stock
If your business is a C corporation whose gross assets have never exceeded $75 million, and you acquired the stock at original issuance for money, property, or services, you may qualify for a partial or full gain exclusion under Section 1202. For stock held at least five years, the exclusion can reach 100% of gain, subject to a lifetime cap of $10 million or $15 million per issuer depending on when the stock was acquired.10Office of the Law Revision Counsel. 26 USC 1202 – Partial Exclusion for Gain From Certain Small Business Stock The corporation must have met active business requirements during substantially all of your holding period. Section 1202 doesn’t cover S corporation stock, LLC units, or partnership interests.
Installment Sales
If the buyer pays over time, the installment method lets you spread the taxable gain across the years you receive payments. Each payment splits into a tax-free return of basis, interest income, and capital gain.11Office of the Law Revision Counsel. 26 USC 453 – Installment Method Spreading the gain can keep you in a lower bracket. Note that if you sell to a related party such as a family member or an entity you control, the installment method is restricted and all payments may be treated as received in the year of sale.
Close the Deal
Once the purchase agreement is fully negotiated, closing means signing everything, moving the money, and delivering proof the ownership changed hands. Both parties typically sign in front of a notary. If co-owners hold tag-along rights or the company holds a right of first refusal, get written evidence those rights were waived or exercised before you sign.
Funds usually move by wire or through an independent escrow agent. Escrow adds protection: the agent holds the buyer’s money until both sides confirm all conditions are met, then releases the funds to you and the ownership documents to the buyer. On installment deals, the down payment moves at closing and the promissory note for the balance is executed at the same time.
Then you deliver the transfer evidence. For a corporation, that’s a new stock certificate in the buyer’s name, or a book-entry notation if the company doesn’t use physical certificates. For an LLC, it’s an updated membership ledger showing the new member’s units and percentage. If you’re staying on with the business, a separate consulting or employment agreement is often signed the same day.
After the Sale: Filings and Records
Closing sets off several reporting obligations, each with a deadline.
IRS Filings
If the sale changes the business’s “responsible party” — the individual who controls, manages, or directs the entity — you must file IRS Form 8822-B within 60 days of the change.12Internal Revenue Service. About Form 8822-B, Change of Address or Responsible Party – Business That applies to any entity with an EIN. Selling a minority stake that doesn’t shift control generally doesn’t trigger this. Selling a majority stake almost always does. That’s the second and final dash in this piece.
You report the gain or loss on your personal return using Schedule D and Form 8949. If the business is a partnership, the partnership updates Schedule K-1 for each partner to reflect the new profit and loss allocation for the rest of the tax year. Form 8594 does not apply here. It’s the asset acquisition statement, used only when a deal is structured as an asset sale rather than an equity sale.13Internal Revenue Service. About Form 8594, Asset Acquisition Statement Under Section 1060 A straightforward sale of stock or membership units doesn’t require it.
State Filings
Whether you file anything with your state depends on what your articles of incorporation or organization show. If state records name individual members, managers, or officers, and the sale changes any of them, you’ll file an amendment or updated annual report. Fees typically run from about $25 to $100, and processing takes anywhere from a few business days to several weeks. Keep the stamped confirmation.
Internal Records
Update the company’s own records right after closing. Amend the operating agreement or shareholder register to show new percentages, issue any resolutions documenting the transfer, and distribute copies to all current owners. Clean internal records prevent disputes over distributions, voting, and future transfers.