The agency is an S Corp, with $500,000 in shares. I do not wish to purchase the Stock, only the Assets. This would be the furniture and the books of business etc. ======>>>>>There are two primary ways that businesses are purchased: stock purchase and asset purchase.
The most common, by far is the asset purchase.you need to know the difference between an asset purchase vs a stock purchase; with an asset purchase, the seller retains the stock and you may only be responsible for liabilities outlined in the sales or purchase agreement. With an asset purchase, you are usually required to form your own business structure, corporation, or limited liability company. This type of purchase is more attractive to a buyer who can pick and choose which liabilities they want to assume and which assets they want to purchase.you also assume all or a
portion of Seller Corp’s contracts and liabilities, including, the lease for Seller Corp’s store or offices.
This is what the owner asked:
As I continue to talk with different professionals around the structure of the sale of AFS, I realized that I needed to check with you on exactly what you want to purchase. You are looking at purchasing the book of business with the office equipment/furniture and not the S-Corp itself, is this correct?=======>>correct
There are tax implications for the sale either way, but they are more complicated when it is a sale of an S-Corp rather than specific assets of the corporation.
========>>>>>The tax situation for the Seller with an asset purchase transaction is a bit more
complicated. It depends on whether Seller Corp is taxed as a “C” corp or an “S”
corp, the profits of Seller Corporation to date, and the value of the FF&E and amount of
depreciation taken.as Seller Corp is a “S” corp, then the Seller pay taxes on the Seller
Corp’s gain and profits. Unlike the “C” corporation, this income is taxed only once, to the Seller. The tax rates vary based on the factors. But, a portion of the
income will probably be taxed at the higher ordinary income rates (up to 35%) and the overall
tax rate will be more than the capital gains rate of 15% used for the stock purchase.
In short, the tax advantages of a stock sale benefit the seller.
This is what my lawyer said:
I took a brief look at the attached and would suggest that you also talk with your accountant about the related tax issues today. Because of Mr. T's death, there may likely be a stepped up basis regarding the assets of the business as of the date of Mr. T's death which would increase the value of the tax basis in connection with the sale of the assets (in other words reduce the tax implications).=========>>I guess it depends; even though the S corp’s assets do not receive a basis step-up upon a shareholder’s death, the deceased shareholder’s estate may be able to leverage the stepped-up basis of the deceased shareholder’s stock to reduce tax on the sale of the assets. To do so, the corp must liquidate and distribute assets in the year of the deceased shareholder’s death.