Overview of the Process of the Business Sale
The purchase and sale of a business (business sale) can be an extremely overwhelming and fulfilling experience at the same time. There are no two sales that will be the same, therefore, it is extremely important to treat each business sale with extreme detail and care. Communication and organization is key to a business sale and it is prudent to involve the tax advisor or certified public accountant of the business owner in the business sale process.
Business Sale and Purchase
The business sale may be structured as a sale of the stock or membership units of the company or it may be structured as the sale of the assets of the business. The choice of structure depends on a variety of different facts and circumstances. For instance, an owner of an S corporation (whether it is a limited liability company (“LLC”) or corporation can only sell their stock to certain individuals and/or trusts. Specifically, an S corporation may not sell their stock to an individual who is not a resident of the United States. An S corporation also may not sell their stock to a business entity. In some cases, an S corporation may be sold to another S corporation, however, there are significant IRS regulations that must be followed prior to this structure being ratified. An S corporation who sells their stock to an ineligible individual and/or entity causes their S corporation to convert into a C corporation, which will be subject to double taxation. This would be a nightmare for a small business owner. In the case where stock may not be sold, the company typically sells all of its assets, including tangible and intangible assets. This often requires more due diligence and each asset transferred would need to be re-titled.
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