Business Broker: Should I Sell Business Assets Or Shares Of Stock?
Taking on partners in your business can provide a vital key to expansion. Their investment in your company provides you with growth capital. How you sell matters though. You must decide whether to sell business assets or shares of stock. Each choice provides different ownership levels and tax impacts.
What It Means to Sell Business Assets or Stocks
When you sell your business assets, you’re selling a portion or whole of the rights to its name, brands, trademarks, inventory and physical property. The purchaser owns a part or all of your company, depending on which you offer. You can sell a small percentage or take on a full partner by selling half. You may take on a silent partner who invests in your firm while you make the day-to-day decisions. Two common examples of this include angel investors and venture capitalists. This is the only type of sale a sole proprietorship may legally undertake.
When you sell stock in your firm, you’re selling a small, limited ownership of the business that pays a dividend when your business remains in the black. Owners of stock shares also obtain voting rights in the major matters of the corporation. Companies that offer stock sales include: corporations, limited liability companies and partnerships. The more complex your business, the more likely the purchaser(s) will want stock.
Tax Impacts When You Sell Business Assets or Stocks
The tax impacts when you sell business assets or stocks differ depending on the type of organization. The best scenario for the seller varies under the following conditions:
- C corporations pay taxes on income and dividends from the firm.
- S corporations and limited liability corporations (LLCs) pass through the income to the owner.
This can result in double taxation for the C corporation owner in an asset sale, so they usually use a stock sale.
On the other hand, buyers usually prefer assets sales because these result in significant tax deductions on the purchase except any land included. A stock purchase results in a much smaller tax deduction for the buyer.
Consult with your certified public accountant about the impact a sale will have on your personal income tax rate and on the corporate income tax, if the firm is not a sole proprietorship. Discuss the capital gains tax imposed on your asset sale. For assets owned a year or longer, a long-term tax rate applies that ranges between 0 percent to 15 percent. Also, discuss the tax impacts if you sell depreciated property.
Concluding the Sale
Selling your business bears no resemblance to selling your car or house. You’ll need to consult a number of professionals besides your CPA, including your attorney and a business broker. If you’re looking to purchase a business, you need the same trinity of professionals, at a minimum: attorney, business broker, CPA. Your attorney ensures the legality of the transfer. The business broker acts as a go-between who helps businesses who want to sell find buyers who want that type of business. The CPA ensures you cut the best deal possible to improve your income and investment portfolio while adhering to tax law.