The Sale Of A Business
we will cover the two types of sales ("Asset Sale"
Vs "Entity Sale"), the tangible and intangible
assets that may be included in the sale, and the different
agreements that can be part of a sale of a business( consulting
contracts, Covenant No To Compete etc.) .
Difference Between An "Asset Sale" And An "Entity
are two basic ways to sell your business: You can sell the
buyer some or or all of your company's assets (the "Asset
Sale" method) or you can sell the buyer your corporation
or LLC that owns the assets (the "Entity Sale"
your company is a single proprietorship the sale will always
be an asset sale.
you company is an LLC or corporation, you have the choice
of either approach.
buyers will want the sale to be an an asset sale because
it limits their liability. When the buyer purchases
your entity they become responsible for any of your liabilities
(debts, legal claims etc.). With an asset sale, they are
just buying the specific assets listed in the sales contract.
in a business sale everything is negotiable, so even
with an entity sale the buyer may try to negotiate to have
specific assets or liabilities removed from the sale.
as the seller, you can choose to have any assets you want
to keep removed from the sale. Accounts receivable,
for example, are often retained by the seller regardless
of the type of sale.
addition to liability concerns, their are big differences
between the two types of sales when it comes to taxes.
So you definitely want to consult with your CPA and attorney
when deciding what type of sale you want to pursue.
term "Assets Sale" as used in the above section
refers to the legal structure of the sale. Below
we will talk a lot about the assets that make up a business.
So when we use the word "asset" below, we are
talking about all the things of value that the company owns
such as real estate, inventory, equipment etc. So the question
of whether you pursue an "Asset Sale" or an "Entity
Sale" should not be confused with a discussion of the
Tangible And Intangible Assets That Make Up The Sale
there are big tax and legal differences between the
two types of sale structures, one thing that is the same
in both is that you and the buyer have to agree on exactly
what assets and liabilities are to be included in the sale.
Do you want to keep your company car?
computer that sits on your desk?
about the accounts receivable? Do you want to take them
with you or will you add their value to the asking
price and let the buyer try to collect on them?
assets that may be included in the sale are:
fixtures, and equipment (including cars, truck, forklifts,
computers and printers etc.)
Inventory (finished goods, works in progress, raw materials)
Real estate (land, buildings, leases)
rights to occupy leased property
contracts with suppliers
an "Asset Sale", your profit from certain assets
will be taxed as long term capital gains yet other profits
will be viewed by the IRS as regular income.
your tax bill may be dramatically affected
by how the assets are allocated within the sale.
often, what lowers your tax bill will raise the taxes of
example, the amount that the buyer pays you for Goodwill
is considered a long term capital gain (as of this
writing long term capital gains are taxed at 15%). So the
more the buyer pays you for goodwill, the better for
the buyer must amortize the amount he paid for good
will over 15 years - and that is not good for him when it
comes to lowering his taxes.
the other hand, the amount your are paid for inventory is
viewed as regular income (and therefore a higher tax
rate than the long term capital gains rate you pay on
the goodwill). So obviously you would like the percentage
of the selling price allocated to inventory to be as
small as possible. But the buyer, who can expense inventory
off as soon as it is sold, would like to see a high figure
allocated toward inventory.
in addition to the overall selling price, you and the buyer
will need to negotiate the percentage of the selling
price that is attributable to each type of asset that is
included in the sale.
may seem to hopelessly complicate the sales process, but
in fact it can help to make the negotiation
process more successful.
say, for example, that you and the buyer are at loggerheads
over the price - he doesn't want to increase his final offer
and you don't want to come down anymore than you already
have. You could offer to reduce the price to meet his demands
in exchange for shifting more of the selling price
from inventory to goodwill.
on your situation, you may save more in taxes than
the amount you reduce the selling price.
this is one area where you will rely on your account
for guidance throughout.