The form of seller’s organization, for example C Corp, S Corp, or LLC are important to consider in a business sale. In a C Corp vs. an S Corp and LLC, gains are subject to double taxation. In a C Corp sale gain from sale of assets is taxed at corporate income tax rate. The remaining proceeds are distributed to shareholders and difference between liquidation proceeds and stockholder stock basis are taxed at individual’s long-term capital gains rate. The gains have been taxed twice reducing individual’s after-tax proceeds. An S Corp or LLC sale results in gains being taxed only once using tax profile of individual stockholder.

Selling your business – tax consideration checklist:

1.Get good tax and legal counsel when you establish initial form of your business – C Corp, S Corp, or LLC etc. 2.If you establish a C Corp, retain ownership of all appreciating assets outside of corporation (land and buildings, patents, trademarks, franchise rights). Note: in a C Corp sale, there are no long-term capital gains tax rates only income tax rates. Long-term capital gains can only offset long-term capital losses. Personal assets sales can have favorable long-term capital gains treatment and you avoid double taxation for these assets with big gains. 3.Look first at economics of sales transaction and secondly at tax structure. 4.Make sure your professional support team has deal making experience. 5.Before you take your business to market, work with your professionals to understand your tax characteristics and how various deal structures will impact after-tax sale proceeds 6.Before you complete your sales transaction work with a financial planning or tax planning professional to determine if there are strategies you can employ to defer or eliminate payment of taxes. 7.Recognize that as a general rule your desire to “cash out” and receive all proceeds from your sale immediately will increase your tax liability. 8.Get your professionals involved early and keep them involved in analyzing various bids to determine your best offer.

Again, purpose of this article was not to offer you tax advice (which I am not qualified to do). It was to alert you to huge potential impact that deal structure and taxes can have on economics of your sales transaction and importance of involving right legal and tax professionals.

5. Repeat this process daily for at least 5 days — unless of course you complete task before then.

6. If job still isn’t done by now, you certainly know why it isn’t done and/or what resources you need to do it. Decide whether or not you will actually do task.

7. Do it, ditch it, or delegate it appropriately.

This works because procrastination is often a sign of ambivalence. Part of you does want or needs to do task, but another part of you, usually a silent part, does not want to do it.

Giving resistant part of you a chance to speak, as well as acknowledging that you have power to complete task when you are ready resolves impasse.

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Laurie Weiss, Ph.D. Email: media@laurieweiss.com

Copyright 2004 Laurie Weiss, Ph.D.