Discussion 3-1
Sale of Assets
The pros of structuring a sale of a business as a sale of assets include the buyer
being able to choose which liabilities they will assume and buyers can also
choose to not buy certain assets (Rosendahl, 2020). A con for the buyer includes
transferring certain assets can create questions about legal ownership,
assignability, and third-party consent. Obtaining these consents can take time
which can delay the transaction (Rosendahl, 2020). Sellers do not typically like
structuring the sale of a business as a sale of assets because this includes higher
taxes for them, especially if the selling company is a C Corp, then the seller
faces double taxation. The pros for a seller in this scenario include having
leverage for negotiating a higher sale price due to these higher taxes
(Rosendahl, 2020).
Stock Transaction
The pros for a buyer when structuring a sale of a business as a stock transaction
include the 338(h)(10) election which allows the buyer to treat the transaction as
an acquisition of 100% of the assets for tax purposes, only if the buyer has 80%
or more of the target corporation (Rosendahl, 2020). This election provides
great tax savings for the buyer. Cons for the buyer in a stock transaction include
lower depreciation expense which could lead to higher taxes than if they did an
asset sale (Rosendahl, 2020). Buyers also take on more risks with a stock
transaction of a business. Sellers typically prefer stock transaction because it is
simpler, include lower capital gain tax rates and corporate-level taxes for C
Corps are bypassed. Sellers also can potentially avoid responsibility for future
liabilities unless the buyer insists the seller assumes these responsibilities
(Rosendahl, 2020).
Rosendahl, M. (2020).
How To Structure the Sale of Your Business: Asset or
Stock.
How to Structure the Sale of Your Business: Asset or Stock
(pcecompanies.com)
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