By Michael Tota on Tuesday, 19 December 2017
Category: Uncategorized

The Two Ways to Buy & Sell a Business - Tax Considerations to Keep in Mind

Buying or selling a business is a complicated transaction with many tax, legal and financial variables to consider.  Although the sale or purchase of a business should never be compelled by tax considerations alone, taxes can have a substantial impact.  Questions such as, what are the goals of the buyer and the seller, how should the transaction be structured, what types of entities are involved, should all be well thought out. 

There are two basic ways to purchase a business 

  1. Asset Acquisition
  2. Stock / Ownership Interest Acquisition

Depending on the entity structure and certain circumstances of the buyers and sellers, either option may prove to be more beneficial.  However, as with many business transactions, the buyer and seller don’t always agree.  Buyers generally prefer to buy assets, while sellers generally prefer to sell stock, if possible.

Buyers generally prefer to buy assets because:

Sellers generally prefer to sell stock because:

Asset Acquisition

The tax implications for both the buyer and the seller depend on how the purchase price is allocated amongst various assets.    This is a critical piece of the transaction and the buyer and seller must use the same allocation despite having opposing interests.

 Buyer Considerations:

Seller Considerations:

Stock Acquisition

Buyer Considerations:

Seller Considerations:

Taxes are just one piece of the puzzle when buying or selling your business and can significantly impact the resulting cash flow for both parties involved in the transaction.  By understanding all of the economics of a deal, you can adjust the purchase price or terms of the deal as necessary.

If you are thinking of buying or selling a business contact a member of our team today to learn more about tax consideations and strategies.  

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