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Transferring a Business is a Team Effort

Transferring a Business is a Team Effort

Thinking about buying or selling a business? It’s a big step in life, so let’s talk about surrounding yourself with the right help to make sure you make the best deal possible.

A tempting path for some entrepreneurs is trying to handle the entire transaction themselves. The temptation is understandable. Professional help is costly and entrepreneurs tend to be intelligent people, that have excellent knowledge about their business, and have often entered into a number of “minimally documented” (or undocumented) transactions without suffering negative consequences. An entrepreneur may look at this data and feel like s/he may as well save the cost of using a professional and go it alone.

Similarly, an entrepreneur may decide to obtain professional assistance but become so focused on managing the scope and cost of those services that s/he risks losing a large part of the value that professionals bring to the transaction. Attorneys often encounter resistance from our clients when we suggest setting up a meeting between us and the client’s broker, CPA and/or financial planner to review the intended structure.  However, those meetings are important to ensure the intended legal structure also provides the best financial/tax structure.

For instance, a meeting between the entrepreneur’s attorney and tax professional may reveal that the tax code allows the party(ies) to make an election[1] that allows the buyer to obtain a “step up” in the basis of the company’s assets (i.e. mimicking the tax result of an asset purchase) even though the seller is requiring the legal structure be an equity purchase. Alternatively, the same meeting may suggest a negative tax consequence to the entrepreneur if the other party makes that election. Your attorney can then use that information to expressly forbid such an election in the transaction documents.

The sale or purchase of a business is among the most important decisions you will make. Getting the advice you need to obtain the best possible results is well worth the investment. Before rushing into a deal take a few minutes and consider who might be able to help you secure the best possible outcome for you and your family.

 

[1] See e.g., 26 U.S.C §§ 338(h)(10) & 336(e)

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