Buying or Selling a Business
A business attorney is essential if you are buying or selling a business. If you are buying a business, a business attorney can make sure the business you are buying has complied with all local, county and state laws. The attorney can make sure the business location is zoned properly for the business you are buying. The attorney can make sure that the purchase agreement is properly drafted, and that it contains a non-compete clause that will protect your interests. If you are selling a business, a business attorney can make sure the purchase agreement protects your interests, and that any promissory note or security agreement that is drafted is drafted correctly.
A covenant not to solicit the acquired business' employees and customers is permissible because it prevents the seller from eroding the very goodwill it sold. On the other hand, a covenant barring the seller from soliciting all employees and customers of the seller, including those who were not employees or customers of the acquired business, would give the buyer unduly broad protection against competition.
Payments made under a covenant not to compete are amortizable over a 15–year period by the acquiring person or corporation. The payments are not otherwise deductible or depreciable.
With respect to taxes, in general the selling corporation or shareholders will usually want the transaction to be “tax-free” (i.e., structured to avoid presently taxable gains on the sale). On the other hand, the acquiror/buyer may want the acquisition to be taxable to the sellers in order to obtain a “step-up” in basis of the assets acquired. The transaction's form will determine whether it is taxable or nontaxable, or trigger sales and property taxes. The buyer and seller should seek the advice of a good CPA.
Sales taxes may be imposed on a sale of assets, but not on a merger or stock acquisition.
An acquisition of assets is accounted for as a “purchase.” The acquirer must allocate the fair market value of the consideration paid for the acquired assets in accordance with their fair market values. As a result, the assets are brought onto the acquirer's/buyer's balance sheet at their fair market (“stepped-up”) values, not the former (“carryover”) values shown on the acquired corporation's books.
If you are thinking of buying or selling a business, give us a call. (949) 645-7300.