How do you pay a seller with stock instead of cash?

How does paying with stock actually work?

The parties agree a total price first. Then they split it into cash, a seller note and stock. The number of shares is the stock portion divided by the agreed value per share.

The deal can take one of a few legal forms:

• Share exchange. The seller transfers their company's shares to your holding company and receives holding-company shares, plus any cash.
• Asset purchase paid partly in stock. Your company buys the assets and pays part of the price in its own shares.
• Merger. The target merges into a subsidiary of your company, and the seller receives your shares.

The shares the seller receives are almost always restricted. They can't be resold freely until a holding period passes or they are registered.

Is private stock different from public stock for the seller?

Very different. The seller is trading a business they control for a minority stake in yours.

Private stock has no market. Its value is whatever the parties agree, supported by a valuation. The seller gets liquidity only if the company is sold, pays dividends, buys shares back or lists. Sellers who accept it usually ask for a shareholder agreement with tag-along rights, information rights, and sometimes a put right to sell shares back at a formula price.

Public stock has a market price. Under Rule 144, restricted shares in a reporting company generally can be resold after a six-month holding period, or one year for a non-reporting issuer, subject to conditions. Thin trading in small companies can still make selling slow. See why sellers accept public stock more readily than private stock.

What securities rules apply?

Issuing shares to a seller is an offer and sale of securities. It must be registered with the SEC or fit an exemption, usually a private placement exemption such as Regulation D. State securities laws can apply too.

The seller's accredited investor status matters. If the seller is accredited, the exemption is usually simpler. If not, some exemptions are unavailable and others require you to give the seller detailed disclosure, close to what an investor would get in an offering. Sellers who hold their company through a trust or entity add another layer. Confirm the exemption, the disclosure and any state filings with securities counsel before you put stock in an LOI.

How do you value the stock you are issuing?

Two valuations are in play: the seller's business and your company. Overvaluing your own stock is a quiet way to overpay. Undervaluing it is a quiet way to give away ownership.

• Private company: use an independent valuation or the price of a recent equity round with outside investors. Sellers will discount a number you set yourself.
• Public company: use an average market price over a set period, not one day's close. Some deals add a collar that adjusts shares if the price moves too far before closing.

Watch the share count. Castellum, on NYSE American, paid more than 80% of a roughly $6.6M acquisition in restricted stock. Its share count rose from about 53M to about 94.6M between March 2024 and March 2026. Every share issued is a claim on future profit.

What if the buyer is using an SBA loan?

SBA rules add limits. Under SOP 50 10 8, a partial change of ownership is eligible only as a stock or membership-interest purchase, and a seller who keeps equity must give a full personal guaranty for at least two years after disbursement. SBA rules also prohibit seller earnouts. If the seller would receive holding-company stock in an SBA-financed deal, ask the lender early how it will treat that equity and the seller's guaranty.

Worked example: $4M price, 25% in stock

Assume a business earning $1M of EBITDA sells for 4x, or $4M. Your holding company is valued at $20M with 10M shares outstanding, or $2.00 per share. These figures are assumptions for illustration.

1. Cash at close: 60%, or $2.4M.
2. Seller note: 15%, or $600,000.
3. Stock: 25%, or $1M. Shares issued: $1M ÷ $2.00 = 500,000.
4. Shares outstanding after closing: 10.5M. The seller owns 500,000 ÷ 10.5M = about 4.8%.
5. If your company is really worth only $15M ($1.50 a share), the seller's shares are worth $750,000, not $1M. Expect the seller to ask for proof of the $20M.
6. If your company is really worth $30M ($3.00 a share), you gave away $1.5M of value to settle $1M of price.

The 60% cash share here is below what Main Street sellers usually get. The IBBA reports sellers received 83–92% of deal value in cash at close in Q2 2026. A seller accepts less cash only when they believe the stock will be worth more.

Where these numbers come from: stock-as-currency findings from the CLS Blue Sky Blog (July 14, 2026); Castellum share counts from jwatte.com; SBA partial change of ownership rules from Starfield & Smith; earnout prohibition via Cantrell Law; cash at close from the IBBA Market Pulse Q2 2026. Rule 144 holding periods are general securities law.

Related questions

Can I pay a seller entirely in stock?

It is possible but uncommon in small deals, because most sellers want cash to retire or pay tax. Paying mostly in stock also dilutes your existing owners. Castellum's more-than-80% stock deal is a case to study for dilution.

Does the seller have to be an accredited investor?

Not always, but it changes which exemptions you can use and what disclosure you must give. Confirm with securities counsel before you offer stock.

Can a seller defer tax by taking stock?

Sometimes, if the deal qualifies as a tax-free reorganization or contribution. Cash received is usually taxable. See can a seller defer taxes by taking stock?

What happens to the seller's shares if the holding company is sold?

They are paid out alongside every other shareholder of the same class. A drag-along clause usually requires minority holders to sell on the same terms when the majority approves a sale.

What comes next

A close cousin of paying in stock is letting the seller keep part of their company. Next, read what is rollover equity and how much is typical?

Related articles

• What is rollover equity and how much is typical?
• Why do sellers accept public stock more readily than private stock?
• Can a seller defer taxes by taking stock?
• How do earnouts work in a small business acquisition?
• Should a holding company go public, and at what size?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.