You pay a seller with stock by issuing shares in your company, usually the holding company, for part of the purchase price, at a per-share value both sides agree, under a securities registration or exemption. As of October 2026, academic data on 6,000+ IPO registrations shows about three-quarters of the extra acquisitions companies make after going public are at least partly paid in stock, but among newly public firms, those stock-paid deals underperformed cash deals by 20–30 percentage points over 3–5 years. Small deals that use stock usually mix cash, a seller note and a minority of stock. Confirm the securities and tax treatment with securities and tax counsel before you offer it.
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:
The shares the seller receives are almost always restricted. They can't be resold freely until a holding period passes or they are registered.
My view is that cash is usually better. If you can, sell shares to investors for cash and pay the seller in cash, rather than paying the seller in stock. Paying in stock makes sense only when your shares are priced very high, the seller is willing to accept them, and you can reasonably believe the seller is committed for the long term and will not sell the shares right after closing.
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.
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.
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.
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.
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.
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.
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.
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.
Not always, but it changes which exemptions you can use and what disclosure you must give. Confirm with securities counsel before you offer 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?
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.
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?
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.
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Meraki Dealmakers is a service of Meraki Partners, LLC.
Meraki Partners, LLC is an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm, and does not solicit investors or receive compensation based on capital raised.
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