Name: Lisa S********n
Subject: selling our business
Question:
Hi, My husband and I are 50% owners of a commercial electrical
contracting business. The business has been very successful, grown from
2 to 45 employees and we're in our 21st year of business. We would like
to sell our 1/2. How do we go about finding out (accurately) what the
business is worth?
Our business partner may be interested in selling as well if we can
find the right buyer. Where do we find buyers? Thank you!
Answer:
Lisa:
First, you must look at the business records. Is there a Buy/Sell
Agreement? Are sales restricted? Is there a stated price or formula?
Next, you need to have the tax impact of the sale determined.
Is the Business a corporation? Is it a C or S corporation. If the
corporation is a C corporation that will greatly lower the net
after-tax proceeds for the sellers.
First, you should talk to your tax and business attorney about the
different sale options (asset sale, stock sale, merger) and to help
determine the value. Your attorney can recommend a good business
advisor to help you determine the value an marketing options.
I hope this helps!
Ron Cappuccio
_________________________________________________________
Name: Cyndi
Subject: Buying into a business
Question:
Scenario: I rent space as an independent contractor in a business. I'm
considering a partnership in that business. If I want a stake in the company,
I'm being asked to "buy-in" to this business.
The owner took out a $50, 000.00 loan for T.I's. (sign, built-in partitions,
furniture, etc) Other than the structural T.I's and furniture/decor, there is no
"real" property. The space is leased.
Services are provided to clients, but my
services are in a different area of expertise than the current owner. We each
would continue to keep our own revenue from those services.
My question is this: The business has been open 2 years. (each of us have more
years than that working in business but THIS business is 2 years old) It still
has this debt.
Would it be customary for me to buy into that loan? Say the loan is $50K: I
become a 30% partner. Is the appropriate "buy in" for me $15K since that's the
amount of loan she took out for T.I's?
And I understand that after all P&L is calculated for each month I would receive
30% of what's left. What about loss? Am I correct in assuming that whatever we
were to be in the red would be 30% my responsibility at that point?
Answer:
Cyndi:
This is a great question! Doing this very complex business transaction is a
perfect example of why people "lose their shirt" in business. You need a
business lawyer to help before you sign anything. Get help now!
Ron Cappuccio
______________________________________________________________
Name: Brian Subject: convulted bid Question: My clients are attempting to sell a quarry. The person below sent the following bid which feels like a scam. Can you clarify?...........I am following up on our previous conversations and wanted to remind you of our investor group’s interest in acquiring closely-held corporations that have sold, or, are intending to sell their real estate assets (or, real estate-like assets) in a divestiture transaction. If the quarry, you mentioned, in your e-mail is in the form of a ‘C’ corp. and an Asset sale takes place, then we would like to buy the stock of the shell company.
Our business strategy is to purchase the outstanding stock of target, immediately after the asset sale has been completed, but before it is liquidated, and then to invest the acquired cash in a portfolio of like-kind exchange replacement property pursuant to a 1031 exchange. Our acquisition of the target has to be completed within 180 days of the completion of the real estate asset sale.
The investor group is willing to pay more for the stock of the target, than what the shareholders would have received, in a standard asset disposition. This is because the inherited tax liability is deferred over a 10 year period. The net financial result to the selling shareholders is a 20-30% increase in ROE. In addition, they provide an immediate, compliant and profitable exit for the selling shareholders from the target’s corporate tax liability. Their consideration is paid in cash.
The recent crackdown by the IRS on cash-box transactions, or, substantially similar transactions as described in Notice 2001-16 and Notice 2008-20, that use loss assets to offset gain, enables us to differentiate our business model from others in the industry, with a compliant exit strategy for the sellers of real estate in a tax-inefficient ‘C’ corp. formation. Our secondary stock acquisition of the target, is not a potentially tax abusive, or, a listed transaction for tax shelter purposes – as described in Notice 2001-16 and Notice 2008-20. The acquisition structure is based on a 1031 exchange program, in which the sale of real estate asset(s), followed by the replacement of such real estate, results in gain which has been realized and deferred, but not recognized as yet.
Please note that our business model is, therefore, only applicable and available to closely-held corporations, with underlying real estate assets - which may include real estate-like assets, e.g. long term leases, mineral rights, oil & gas timber etc. (We might also consider ‘S’ corps that derive their tax status from a ‘C’ corp.)
If you have clients that might benefit from such a secondary stock acquisition transaction, (that would maximize the sale proceeds of a real estate asset sale to the selling shareholders), then look forward to discussing opportunities with you.
Answer: Brian:
I believe this is a scam. If your clients insist that you pursue it, be very careful to research the buyer.
I hope this helps!
Ron Cappuccio
Call me
at (856)
665-2121 today!
Ronald J. Cappuccio, J.D.,
LL.M.(Tax) Counsellor
at Law
1800 Chapel Avenue West, Suite 128
Cherry Hill, NJ 08002 USA
Phone (856) 665-2121
Fax (856) 665-9005 Email: Ron@TaxEsq.com
