Sale of Corp

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Abdul Mohsin Mahmood

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Aug 2, 2022, 1:32:07 PM8/2/22
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A single tax payer owns a Corp. and want to sell it.
Corp. book show following
Cash 120000
Equipment net of depreciation. 15000
accounts receivable. 8000

Total assets. 143000

Liabilities
Loan. 123000
Accounts payable. 25000
Stock . 0
Paid in capital 77000
retained earning    -82000
Total Liabilities= 143000.
Sale price is 450000
Plus he will be liable to  pay loan of 123000
What is the best way to structure the sales




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Lee Reams

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Aug 2, 2022, 1:39:07 PM8/2/22
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He can either sell the entire business (but most buyers don’t like to do that) or he can sell the individual assets.  

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Abdul Mohsin Mahmood

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Aug 2, 2022, 9:21:32 PM8/2/22
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Buyer would like to have business name so would buy business.
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psto...@comcast.net

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Aug 2, 2022, 10:01:44 PM8/2/22
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I side with Lee as to the big alternatives...
… your client owns a Corp which has assets that are used in a business … you say your client (I assume that to be the owner of the stock in the corporation…) “wants to sell it” (the corporation)..


The client owns the stock in the Corp & does NOT own the assets used, by the Corp, in the business.. So your client either sells the stock or the assets ...Lee's point 


Usually client does not "sell" cash...your facts are complicated... 
See also section 1060


This from IRS promulgation located at


https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business#:~:text=The%20sale%20of%20a%20business,business%20usually%20has%20many%20assets


"The sale could be structured as a stock sale but as Lee points out buyers usually want the assets booked at FMV…
So the buyers would prefer structuring it as an asset sale.. This would be structured as a bulk sale of the assets of the corp including the right to the name


The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.


"A business usually has many (at least several) assets. When sold, these assets must be (separately)  classified as (1) capital assets, (2) depreciable property used in the business, (3) real property used in the business, or (4) property held for sale to customers, such as inventory or stock in trade. (parentheticals are mine)
 
The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction. The sale of inventory results in ordinary income or loss."

If you don't feel comfortable with this I would seek the help of someone who is experienced in sales of businesses...
This does get complicated...


Phil
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Alma Guenther

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Aug 3, 2022, 10:18:54 AM8/3/22
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Buying business name is an asset. I do not recommend buying corp. Too much liability for taxes, insurance and what ever else pops up later. And it does happen, so beware.

Matthew Bigelow

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Aug 3, 2022, 10:25:57 AM8/3/22
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It looks like Abdul represents the seller of the business, so none of that is his concern. In fact, it’s probably better for the current owner if he simply sells the company. All of the gain is capital and he transfers most, if not all, of the company’s liabilities to the buyer. Unless the buyer is getting incompetent advice, however, it’s very unlikely to happen that way.

 

Matthew Bigelow, E.A.

JLZ Business Services, Inc.

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Diana Skocypec

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Aug 3, 2022, 3:22:12 PM8/3/22
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The attorney I live with has recounted several cases of successor corporation liability that he was involved in. I agree with Alma.



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Matthew Bigelow

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Aug 3, 2022, 3:42:29 PM8/3/22
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Wouldn’t that liability apply to the buyer and not the seller of the corporation?

 

Matthew Bigelow, E.A.

JLZ Business Services, Inc.

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From: clientwh...@googlegroups.com <clientwh...@googlegroups.com> On Behalf Of Diana Skocypec
Sent: 08/03/2022 12:22 PM
To: clientwh...@googlegroups.com
Subject: Re: [clientwhysconnect] Sale of Corp

 

The attorney I live with has recounted several cases of successor corporation liability that he was involved in. I agree with Alma.

Lee Reams

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Aug 3, 2022, 4:53:44 PM8/3/22
to 'LaBena Oatis' via ClientWhysConnect
I think you are both saying the same thing.  If a buy purchases the S-Corporarion (ie purchase the stock) the S-Corporation liabilities are still liabilities of the S-Corp which now has the new owner. 

Lee

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Matthew Bigelow

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Aug 3, 2022, 5:12:26 PM8/3/22
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Well, in this case, the original poster represents the seller, but others seem to be addressing issues faced by the buyer. (E.g., one response said they don’t recommend buying the corporation, which is irrelevant to the question posted by Abdul.) Since the buyer is not the focus of the question, I want to make sure we are putting our attention to the issues the poster is asking about, which concern the seller. 

 

Matthew Bigelow, E.A.

JLZ Business Services, Inc.

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Lee Reams

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Aug 3, 2022, 5:14:56 PM8/3/22
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I agree 100%.


 

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Diana Skocypec

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Aug 3, 2022, 5:20:10 PM8/3/22
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As long as there complete and full disclosure on the part of the seller so the buyer actually knows what he/she is acquiring as part of the deal.

scott jessup

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Aug 3, 2022, 5:23:39 PM8/3/22
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It depends on the acquisition contract.  The acquisition contract needs to specifically state which liabilities the seller is retaining or guaranteeing.  However, this assumes the seller is still around after the acquisition to reimburse the buyer.  I am not a lawyer but have 30 years in leverage and commercial banking.  My recommendation is for the buyer to hire a qualified attorney.

RICHARD WILLIAMSEN

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Aug 3, 2022, 6:43:39 PM8/3/22
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I side with Matt.  
The post sounds as if Abdul’s client wants to sell stock.  Great.  Cap gains.
However, I thought the buyer wanted seller to settle the liability.
Seems simple; a few thousand added to the cash pays the liability.  All that’s left is a few dollars in net assets and inventory.  That the buyer wants to pay in excess of those net values - good for Abdul’s seller.  
Yes, they have to set values for the assets.  And both buyer and seller need to be careful to value them at FMV so the categories are reported equally by buyer and seller, ie fixed assets, inventory, intangible (for buyer) (cap gain) for seller.

And yes, buyer beware.  But again, that didn’t seem to be what the original post was about.

Sent from my iPhone

On Aug 3, 2022, at 2:23 PM, 'scott jessup' via ClientWhysConnect <clientwh...@googlegroups.com> wrote:


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