Selling a business can be a challenging, stressful, and often emotional experience.

The process may be lengthy, and the negotiations may feel overwhelming; however, you don’t have to take this journey alone.

Hire a specialized team to provide expert advice and guidance. You’ll need a business or corporate lawyer, your accountant, and someone who can provide emotional support.

By seeking advice from experienced professionals, you can gain valuable insights and guidance that will help streamline the process and boost your confidence in making decisions regarding all aspects of the business, from its people to its legacy.

Selling corporate assets requires planning and guidance on the various types of sales, liabilities, taxes, and market values, ensuring you are well-prepared and secure in your decisions.

Asset Sales

When considering a company, deciding between an asset or a share sale is essential.

An asset sale is when only the company’s tangible and intangible assets are purchased. This method enables the acquisition of corporate property without assuming any previous company debts or incurring tax implications.

It also provides the highest tax benefit for the purchaser by avoiding Stamp Duty Land Tax (SDLT), which can be a substantial additional cost in a corporate sale.

Asset sale prices are often set slightly higher than share sale prices. This extra cost to the buyer is offset by possible recapture income.

Depreciation Recapture

Recapture income is a crucial concept in asset sales. It refers to the difference in value between the property purchased by the buyer and the depreciated value of these assets.

Often, a seller will sell an asset for more money than its recorded depreciated value; this difference is referred to as recapture of income. Understanding this concept is essential as it can impact the overall cost of the transaction. An example is that you purchase a table for $ 10,000 and have so far claimed $ 8,000, leaving a book value of $ 2,000. However, you’ve sold the table for $ 5,000. The IRS will treat $ 3,000 as taxable income.

Obstacles

When participating in an asset sale, there are possible downsides for the buyer, including the following:

• Continuity issues – suppliers may bail or renegotiate terms, and the brand may lose reputation
• Employee impact – staff turnover, or job loss
• Customer loyalty – clients loyal to the brand, and owners move on to the competition
• Regulatory compliance – struggle to cope with regulations

A key consideration is the contracts for employees and freelancers. These terms typically remain the same as they were under the ownership in which they were set. Therefore, it can be difficult for the buyer to alter contractual obligations after the sale.

Share Sales

A share sale occurs when all the business or assets are sold to the buyer in their entirety—everything from the business’s registered name to its debts and tax liabilities.

When it comes to selling a business, various methods are available, including selling shares. This method can be particularly beneficial for sellers, as they can enjoy a lifetime capital gains tax exemption, meaning they won’t have to pay any tax on the sale. This makes it a strategic choice for sellers looking for an exit strategy.

However, buyers of share sales must take responsibility for all outstanding taxes, whether they were incurred before or after becoming owners.

Therefore, buyers of share sales must seek legal advice to better understand any potential legal or tax issues associated with the business.
As a new owner, being aware of your liabilities is essential.

Before you finalize any business transaction, it’s essential to conduct thorough due diligence. A specialized legal firm can help you identify any issues, which will give you more negotiation leverage.

Understanding the business’s liabilities will also help you avoid any unpleasant surprises after the sale, making you feel more cautious and responsible in your decisions.

Q & A

What specific legal aspects should I focus on when preparing for a sale of assets?

When preparing for an asset sale, it’s essential to focus on several key legal aspects, including ensuring that all assets being sold are clearly identified and properly valued, reviewing contractual obligations associated with those assets, and understanding any regulatory requirements applicable to the sale.

Additionally, it’s crucial to ensure that there are no outstanding liabilities or debts attached to the assets, and to have a comprehensive sales agreement that outlines the terms and conditions of the sale to protect your interests.

How can I determine the fair market value of corporate assets before a sale?

To assess the fair market value of corporate assets before a sale, you can begin by conducting a thorough appraisal of both tangible and intangible assets, which may include equipment, inventory, intellectual property, and customer lists.

Engaging a professional appraiser or a business valuation expert can provide an objective assessment based on current market conditions and comparable sales. It’s also helpful to review financial statements, sales records, and industry standards to understand the typical valuations for similar assets in your market.

What steps can I take to minimize risks associated with employee turnover during a business sale?

To minimize risks associated with employee turnover during a business sale, clear communication with your employees is vital. This will help them feel connected and engaged in the process, reducing the chances of turnover.

Providing transparency about the sale process and its potential impact on their roles can help alleviate concerns and address any problems that may arise.  Additionally, consider offering retention bonuses or incentives to key employees to help them stay with the company through the transition.

It’s also essential to maintain a positive company culture and reassure employees about job security to foster loyalty and trust during this period of change.