Discussion:Asset Sale vs Stock Sale
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| {{ForumReplyPost|UserID=JR1|Date=October 31, 2007|Text=Good situation you have there. You're right, seller is the same either way in this case, which is unusual. I'd visit with an attorney, stucture an asset buy so that he can write off the goodwill over 15 years, and keep the name, etc. Maybe a 338h10 election is easier, never done one. But this is a makeable deal for sure.}} | {{ForumReplyPost|UserID=JR1|Date=October 31, 2007|Text=Good situation you have there. You're right, seller is the same either way in this case, which is unusual. I'd visit with an attorney, stucture an asset buy so that he can write off the goodwill over 15 years, and keep the name, etc. Maybe a 338h10 election is easier, never done one. But this is a makeable deal for sure.}} | ||
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| + | {{ForumReplyPost|UserID=Sheldon|Date=29 June 2009|Text=Dw1102: I would like to hear your resolution or a post here as to what you did with this transaction. Mine may be similar with a minority owner buying a majority owner's S corporation stake mostly on an installment obligation. I think the 338h10 may be their answer. | ||
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| + | If anyone else has some input, I appreciate it.}} | ||
Revision as of 22:21, 29 June 2009
Discussion Forum Index --> Tax Questions --> Asset Sale vs Stock Sale
Actionbsns (talk|edits) said: | 2 October 2006 |
| I'm going back to my client who is buying the small S Corp. They have agreed on an asset sale, so as far as that is concerned it's pretty much done. However, what is to prevent the current owner from signing over the stock to the new owner after the asset sale is complete? That would give the new owner the step up in basis on the assets, which is actually nominal and be able to amortize the goodwill, since all that was part of the asset sale? The new owner would like to own the corporation. Is this kind of like having your cake and eating it too? Is it possible? | |
| October 2, 2006 | |
| Gotta be a reason that won't work! Maybe because it's obvious what you're doing. . . | |
| 2 October 2006 | |
| I'm just shooting from the hip on this one, but would the goodwill amortization not be lost? Tangible assets can be donated to the corporation, but I cannot see how the goodwill can. | |
Actionbsns (talk|edits) said: | 3 October 2006 |
| So it sounds like it's not impossible, just not usual. If a person is a sole proprietor who purchases a business and part of that purchase includes goodwill, then that same person incorporates, what happens to the goodwill that was purchased as a sole proprietor when you set up the new books? Wouldn't this scenario be the same? the new owner would be a SP for just a very short period of time.. JR1 we all know it's obvious, but is it wrong? is it violating a law or is it just unusual? | |
| October 3, 2006 | |
| It's gotta be wrong, because it's too easy and obvious and we'd all be doing it....actually...there's no benefit to the seller, and frankly, if the buyer wants the corp that bad, then make him buy the stock and give the seller cap gain treatment. The buyer is trying to get everything at the seller's expense...but as I think about it, if the seller's that goofy...maybe it could work. It's almost sounding like a 338h10 deal... | |
Eenstudent (talk|edits) said: | 26 October 2006 |
| If a Company is incorporated as an LLC, and that LLC engages in an asset sale of all of the Company's assets, are the sellers subject to double taxation? | |
| 26 October 2006 | |
| The buyer would be on the hook for all of the prior owners liabilies. known and unknown. | |
| 26 October 2006 | |
| Sorry for jumping in late here but, when the assets inside the S corp are sold, the S corp will be left with cash and in all probability note receivable. The seller is not likely to sign over the corporation and leave those assets inside the S corp, is he? If he removes those assets from the S corp he is transferring an empty S corp shell to the new owner. Now, there is nothing to prevent the new owner from then purchasing the old corporation from the seller after it has been stripped of its assets, then the new owner could contribute the assets just purchased into the old corporation in exchange for more shares of stock. But why would anyone do this? If the buyer wants to buy the name of the old corp, he can set up a new corp and purchase the name as one of the intangibles. The old corp just renames itself XYZ and the new corp takes the old name. | |
| 7 December 2006 | |
| This might be a reason why a buyer would do this....
If the S corp had long term contracts with customers that could not be assigned, a buyer would get to re-depreciate the assets either if set up in a new S corp or if contributed to shell S corp. True, the buyer would assume any liabilities. One problem may be that the IRS sees this as a clear attempt to circumvent the law(s). I am not a tax expert, but this sounds reasonable. I would like to hear why this is not a valid approach. Thanks | |
| 31 October 2007 | |
| Can you do a stock acquistion of a S Corp and still receive a tax deduction for the amortization of the purchased goodwill inherent in the business?
I know the advice is always to buy assets because (1) you get a step-up in basis, and (2) you avoid purchasing liabilities. But in this case, there are no assets really to acquire, other than goodwill, and the business is really not a liability generator. Acquiring the S Corp stock would be helpful to the continuity of the business and its contracts. But getting a 15 year tax amotization and deduction of the purchased goodwill is also important. Any advice? Thank you. | |
| October 31, 2007 | |
| No. But thinking outside the box, why not enter into a non-compete with the seller personally and the corp? So you buy the stock of the corp, the corp buys a non-compete? That could be amortized. Haven't thot thru the mechanics of that, but perhaps an option. | |
| 31 October 2007 | |
| JR1 - That may work, although the Seller may not want the entire goodwill to be allocated to a non-compete. Moreover, it would seem that you would end up buying (Step 1) the S Corp stock for say $1, and, then, (Step 2) the S Corp (that you would now own) would enter into a non-compete with the Seller for say $100 (or the goodwill value of the business). The Seller may balk at selling the stock for $1 on the promise that the Corp will, then, enter into a non-compete for the value of the business.
Isn't there any way to receive what I sometimes hear refer to as some type of Section 338 election and acquire the S Corp stock and receive a basis for the goodwill that was acquired in purchasing the stock? If this works in other 338 elections, why does it not work in buying S Corp stock? Please advise. Thank you. | |
| October 31, 2007 | |
| You have to have reasonable value for the stock sale, first off. The downside to the seller is that the goodwill or stock sale is taxed at cap gain rates, while non compete is ord. income. Which is why he's selling the stock in the first place. Usually, we adjust the sales price for the stock sale so that everyone's equally unhappy. The seller's saving a bunch of tax, and the buyer gets no tax benefit until he sells it. And a non-compete sticks with the individual selling, not the corp, so it would work separately from the corp for this purpose. Goodwill IS part of the corp and you'd have to stay away from that. | |
| 31 October 2007 | |
| JR1
I am understanding most of your thoughts, but not all Please understand the Seller is willing to sell assets - The only real asset that he has to sell, though, is goodwill (Forget non-compete for the purposes of this discussion) So, the Buyer could buy the assets of the business; that is, the goodwill for say $100 (The value of the business) The Seller has just said - If the Buyer prefers to get continuity of some things in the business (Contracts & the like) - Perhaps the Buyer wants to buy the stock of the S Corp I think the tax consequences to the Seller are identical, whether the Seller sells the assets, or goodwill, for $100, or the Seller sells the S Corp stock for the same $100 - In both cases, I think, the Seller gets capital gain treatment on the $100 - Right? Why can't the Buyer, then, get the $100 goodwill purchased as value in the S Corp, and receive a tax deduction for that goodwill over 15 years? Isn't what I hear some people refer to as a Section 338 election available in the circumstances? Please advise. Your counsel is helpful and appreciated. Thank you. | |
| October 31, 2007 | |
| Good situation you have there. You're right, seller is the same either way in this case, which is unusual. I'd visit with an attorney, stucture an asset buy so that he can write off the goodwill over 15 years, and keep the name, etc. Maybe a 338h10 election is easier, never done one. But this is a makeable deal for sure. | |
| 29 June 2009 | |
| Dw1102: I would like to hear your resolution or a post here as to what you did with this transaction. Mine may be similar with a minority owner buying a majority owner's S corporation stake mostly on an installment obligation. I think the 338h10 may be their answer.
If anyone else has some input, I appreciate it. | |
