Selling a privately held business is often romanticized as face-to-face negotiations over business valuations and purchase price. In many cases the Seller and Buyer often place all of the focus on the transaction price at the expense of the 'net results' of a business transaction. For asset sale transactions, the 'allocation of purchase price' can become another area of negotiation after the price, terms and conditions of the sale have been agreed to by the buyer and seller. Each type of structure carries with it different tax consequences for the buyer and seller, having a material impact on the overall value of the transaction. The type of business entity owned by the seller (C-corporation, S-Corporation, LLC, Partnership, or Sole Proprietorship) in addition to whether the transaction becomes an asset sale or stock sale will have a major bearing on the decisions made in structuring the transaction to afford maximum economic benefits.
The following factors will be relevant in structuring the transaction: 1. Legal Business Entity
Type of Sale- Asset Sale
- Stock Sale
- Entire business
Installment Sale or component of Seller Financing- Financial Buyer (Entrepreneur)
- Strategic Buyer
- Consulting Contract
Personal Tax SituationSTRUCTURING THE TRANSACTION
Asset Sale / Stock Sale Determining what is being sold, the individual assets of a business or the stock in a corporation, will be critical in determining the optimal structure of a transaction.Change in Legal/Tax Entity: With an asset sale, the legal entity and tax identity do not transfer to the purchaser. Under a stock sale, the tax basis of the assets remains unchanged, and all of the tax attributes, including depreciation methods, tax year, corporate tax election, are preserved.
Liability: With an asset sale, the Buyer's liability is limited. Consulting Agreement Depending upon the goals of the seller/buyer and the complexity of the business being sold, the seller could be retained as an independent consultant. Seller Financing / Installment Sale It is rare for a privately-held business to change hands for an all-cash price. More common in small business sales would be to have a component of seller financing as part of the deal structure. Seller financing is a mechanism where the business owner would fund the sale of their business and/or business assets with a promissory note helping the buyer finance all or a portion of the acquisition of the business and/or business assets, which is then paid back from the business' cash flow. This type of deal can be very flexible - the seller can adjust the payment schedule, interest rate, loan period, or any other terms to reflect the seller's needs, business cash flow, and the buyer's financial situation.
There are several benefits to the business owner in providing seller financing:
Tax Benefits Seller financing could be a way for the owner to defer tax on the sale of the business.
Completing the Transaction Seller financing can be a useful tool to complete business sale transactions that need extra financing as part of their structure. Seller financing, in the lender's eyes, mitigates risk as they will have the additional confidence knowing that the seller has a vested interest in the business succeeding. Earn-outs are favorable to both the buyer and seller. The Tax Code shows that assets fall into 7 different categories (asset classes) based on IRC section 1060 (Form 8594), and requires that the buyer and seller adopt and maintain a consistent purchase price allocation method for tax future calculations that will determine both the buyer's basis in the assets and the seller's gain or loss.
Minimizing taxes plays a major role in structuring and negotiating a business transaction. Conversely, we find most business sellers approaching the sale for the very first time. The resources in place for the seller traditionally are comprised of general business practitioners lacking the strong business transaction experience necessary to address the multitude of issues associated with complex business transactions.
Structuring Small Business Sale Transactions
Small-scale production system (SSPS)
Small-scale livestock production is based on subsistence foundations. The small holding agriculture farmers are also holding small-scale livestock for food production, agricultural operations and soil fertility.
;Small-scale agricultural systems are more resilient to climate change and ensure biodiversity.
Biodiversity:;Biodiversity conservation is link to the question of food security.
;Conclusion:;Small scale production system is very important for food security in the climate change context and conservation of biodiversity.
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