Selling a Business: One Tax Advisor or Two?

Co-founders selling the same company do not get the same tax result, which is why each of you needs your own analysis even when you share one accountant. The federal break on qualifying startup stock is capped on each person separately, and the cap is the greater of a dollar limit or 10 times what you paid for your shares. 2 people can own the same business, sign the same deal on the same day, and owe very different amounts.

A founder emailed me last month with a question he was clearly embarrassed to ask. He and his co-founder had an offer on the table, and he wanted to know whether it would look disloyal to call his own accountant.

It wouldn’t. And the reason isn’t etiquette, it’s arithmetic.

By the end of this you’ll be able to work out in 10 minutes whether the 2 of you can share one tax advisor, and what has to be written down if you do.

One thing first. I sell software companies. I’m not your accountant and this isn’t tax advice. What follows is the coordination problem I watch founders walk into, and how to set it up so nobody finds out too late.

Why the same deal produces 2 different tax bills

The company signs one agreement. The government reads 2 returns.

Almost every tax break in a sale is measured on a person, not on a business. That sounds like a technicality. It’s the whole thing.

One precondition before anything else, because it decides whether the rest of this applies to you at all. Section 1202 only covers stock in a C corporation. The statute defines qualifying stock as “any stock in a C corporation” and the company as “any domestic corporation which is a C corporation.” If you run an LLC or an S corp, none of the cap arithmetic below reaches you, though the conflict and confidentiality rules further down apply to every founder pair regardless of structure.

For those who do hold C corp stock, Section 1202 lets founders exclude gain on the sale of their shares from federal tax. Read how the limit opens in the statute itself: “If the taxpayer has eligible gain for the taxable year.” The taxpayer. Your co-founder is a different taxpayer with a different limit.

And the limit is not one number. The same subsection caps you at “the greater of” a dollar figure or “10 times the aggregate adjusted bases” of the shares you sold that year. Founder stock issued for almost nothing has almost no basis, so the dollar figure is your cap. A founder who actually paid real money for their shares can have a far higher ceiling. That difference alone can put 2 people in the same company on different planets.

Now the dollar figure, which moved last year. The law enacted on July 4, 2025, Public Law 119-21, raised it from $10 million to $15 million and lifted the company size ceiling from $50 million of assets to $75 million. The new numbers apply only to shares issued after that date. Shares issued on or before it keep the $10 million cap even if you sell them years later.

The same law added a sliding scale for newer shares. Hold them 3 years and you exclude 50% of the gain. 4 years, 75%. 5 years, all of it. So a co-founder who joined 18 months after you can be on a different rung of that ladder on the day you both sign.

What that looks like with real numbers

Round numbers, and an illustration rather than a deal I worked on. It’s the shape I keep seeing.

2 founders each own 40% of a company that sells in 2031. Each clears $12 million of gain. Ana took her shares at incorporation in 2024 and lives in Texas. Ben was issued his in 2026 and lives in California. Both held long enough to qualify.

Ana’s shares predate July 4, 2025, so her cap is $10 million and $2 million of her gain is federally taxable. Ben’s came after, so his cap is $15 million and none of his gain is.

On the federal return Ben won. Then the state shows up. California ignores the federal break entirely, so Ben owes California tax on all $12 million. Texas has no income tax, so Ana owes her state nothing.

When I’m sitting with a founder pair, this is the sentence I use, and it defuses the awkwardness almost every time: “Nothing about this is a trust problem. You’re 2 taxpayers, and I’d rather you each find that out now than at closing.”

The Divergence Check

6 questions. Any answer that differs means your outcomes already differ.

Run these with your co-founder in one sitting. You’re not comparing numbers, you’re only checking whether the answers match.

The state question is the one founders most often get wrong, because they assume federal law settles it. In California it doesn’t. California repealed its own version of the small business stock break in 2013, after a state appeals court struck it down. Gain that’s fully excluded on your federal return is taxed as ordinary income there.

How much? California’s 2025 rate schedules top out at 12.30%, starting at $742,953 of taxable income for a single filer. A separate 1% surcharge applies above $1 million, which is where anyone selling a company lands. California also gives long term gains no discount at all.

Estate plans belong on this list too, and they’re the quietest item on it. A founder who has already moved shares into a trust for their children has a different set of options, and different deadlines, than one who hasn’t. That work has to happen before a deal is agreed, and it’s nobody else’s business.

What one tax advisor can and cannot do for both of you

Here’s where that email becomes a real question rather than a polite one. Can the firm that has done the company’s returns for 6 years also plan both founders’ personal outcomes?

Often yes. But not quietly, and not by default.

Anyone who practices before the IRS works under a rulebook called Circular 230. Section 10.29 says a conflict exists when representing one client is directly adverse to another, or when there’s a significant risk that duties to one client will materially limit the work done for another. 2 founders arguing over how the price is allocated is the first kind. 2 founders whose interests simply point in different directions is the second.

The rule doesn’t ban the work. It sets conditions. The practitioner has to reasonably believe they can do a competent job for each of you, the arrangement has to be legal, and each of you has to waive the conflict in writing within 30 days. Those consents get kept for at least 36 months after the engagement ends and handed to the IRS on request.

How to set it up

The work splits in 2, on purpose, before anyone signs anything.

Confusing the 2 layers is what causes the trouble.

The deal layer is shared. Modeling the price under a sale of assets versus a sale of shares, allocating the payment, checking the company’s filings are clean, projecting what lands at closing versus what’s held back. Both founders need identical answers here, and paying twice for them wastes money. Our walkthrough of what founders should sort out before a sale covers this layer in detail.

The personal layer is private. Your own cap, your own basis, your own state, your own filing status, your own estate and charitable plans, what you intend to do with the money afterwards. None of that is your co-founder’s business, and some of it you may not want them to know.

So, in order:

1. Run the Divergence Check before you engage anybody. 10 minutes.

2. If every answer matches, one advisor for both layers is usually fine. Still ask for the conflict consent in writing.

3. If any answer differs, keep the deal layer shared and put the personal layer in a separate engagement. Same firm is often fine. Separate letters, separate files.

4. If 2 or more answers differ, or if either of you is uncomfortable with the other seeing your numbers, use different personal advisors. This isn’t a hostile act and any decent firm will say so first.

5. Do all of this before you sign a letter of intent, which is simply the non binding document that sets the price and starts the clock. Once it’s signed you have weeks, not months, and structure gets much harder to change.

Timing matters more than the rest. Most of what changes a founder’s personal outcome has to be in place before the deal is agreed, not after. If one of you is buying the other out rather than both selling, the divergence is larger still and the 2 of you are on opposite sides of the same table.

One more thing worth doing early. Make sure the share records agree with what you both believe. Issue dates decide which cap applies, and I’ve seen founders find their paperwork says something different from their memory. Cleaning up the ownership records is unglamorous and it’s the input everything above depends on.

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