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Buying or selling a business or brand?
Should it be for assets or stock?
The difference could have a huge impact on seller (and buyer) taxes!
Below you will find the tax considerations. Note there are also legal considerations.
***Thread***
Should it be for assets or stock?
The difference could have a huge impact on seller (and buyer) taxes!
Below you will find the tax considerations. Note there are also legal considerations.
***Thread***
The Seller - Stock (Equity) Sale
The seller often wants to sell stock (but not always).
It can be cleaner/easier legally.
It also leaves the seller with one level of tax.
If you have an LLC that is disregarded for tax and sell it, this is viewed as an asset sale for tax.
The seller often wants to sell stock (but not always).
It can be cleaner/easier legally.
It also leaves the seller with one level of tax.
If you have an LLC that is disregarded for tax and sell it, this is viewed as an asset sale for tax.
The Seller - Asset sale
If the assets are sold out of a corporation at a gain, the corp could have tax and the shareholders could have tax, if the cash is distributed.
Thus, potential for two levels of tax.
Any losses in the corp can potentially be used against the gain.
If the assets are sold out of a corporation at a gain, the corp could have tax and the shareholders could have tax, if the cash is distributed.
Thus, potential for two levels of tax.
Any losses in the corp can potentially be used against the gain.
The Buyer - Asset Purchase
The Buyer often wants an asset purchase (but not always).
They usually get a depreciation deduction for the purchase price (over years) on an asset purchase. Can be a HUGE value.
It can also be cleaner legally for the buyer.
The Buyer often wants an asset purchase (but not always).
They usually get a depreciation deduction for the purchase price (over years) on an asset purchase. Can be a HUGE value.
It can also be cleaner legally for the buyer.
The Buyer - Stock Purchase
Here the purchase price gets kind of frozen in the purchased stock until sold again so the buyer doesn’t get the depreciation deduction as in an asset purchase. Huge value shift.
If the target has existing losses, the buyer can potentially use them.
Here the purchase price gets kind of frozen in the purchased stock until sold again so the buyer doesn’t get the depreciation deduction as in an asset purchase. Huge value shift.
If the target has existing losses, the buyer can potentially use them.
In Summary, sellers tend to prefer selling stock (equity) and buyers tend to prefer buying assets.
Due to the potential tax benefit to the buyer (and burden to the seller), buyers can even pay a premium for an asset purchase.
Due to the potential tax benefit to the buyer (and burden to the seller), buyers can even pay a premium for an asset purchase.
If you are a buyer, and it makes sense, try to set the stage with an asset purchase as early as possible. The later you ask for it, the more likely you are to pay a premium.
If you are a seller, and it makes sense, try to set the stage for a stock purchase and ask for a premium if the buyer wants assets.
If you need help calculating the tax difference to both, look for a CPA.
Please like and/RT the top tweet.
If you need help calculating the tax difference to both, look for a CPA.
Please like and/RT the top tweet.
