How would I transfer my ownership interest to somebody else completely?
Should I form a new entity and transfer assets or just transfer ownership of the entity?
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In this audio snippet, you'll hear about:
- Stock transfer or asset transfer? Advantages and disadvantages of both.
- Should definitely speak to a qualified attorney because the facts of the situation will determine one solution or the other
- Seller generally wants to do a stock transfer for tax purposes
- Buyer cannot expense the cost of the purchase in the case of a stock transfer
Audio Transcript
Travis:
Yosef, how would I transfer my ownership interest in my entity to
somebody else, completely? Should I form a new entity and transfer
assets, or just transfer ownership of the existing entity?
Yosef:
Travis, that's a great question. What you're really asking and what
you're really asking is what should I do –– should I do a stock
transfer or should I do an asset transfer?
Travis:
OK.
Yosef:
There are advantages in both and there are disadvantages in both.
Travis:
OK.
Yosef:
I'll go through a few advantages of both types, but one should never
determine the answer to that question without speaking to a qualified
attorney.
Travis:
Fair, yes.
Yosef:
Only because the circumstances of each situation are really going to make one's choice more obvious than the other.
Travis:
OK.
Yosef:
And an attorney can really add a tremendous amount of value when it's done properly.
Travis:
OK.
Yosef:
This is an idea of the advantages and disadvantages. A stock transfer
in some respects can be very simple. On the tax side, the seller when
he sells his shares of stock to a purchaser, he will only recognize
capital gains tax, generally, on the sales of the shares.
So
it's a real inducement for a seller to want to do a stock transfer. It
also relieves the seller in many states of any further liability to the
corporation because the seller is no longer affiliated with the
corporation in any way.
Travis:
OK.
Yosef:
The downsides of a stock transfer include the fact that...The buyer,
from a tax perspective cannot expense the cost of the purchase.
Travis:
Oh.
Yosef:
Typically...My own experience I've encountered...Many times when
businesses are sold, when successful businesses are sold, they're sold
to larger business enterprises. Those larger business enterprises are
very, very concerned about the tax consequences.
Typically
these businesses have hordes of cash and are looking for ways to
expensive things so they don't have to pay tax. So they don't want to
do a stock purchase because they're not going to be able to expense
that purchase. They'd rather do a...
Travis:
Very interesting.
Yosef:
Because there are certain appreciation advantages when you actually
purchase assets from another corporation. Similarly from the buyer
side, an asset purchase is more favorable than a stock purchase because
when you buy assets there is no liability. There are very few, if any,
liabilities that get attached to the purchase of those assets.
When
you buy somebody else's stock from somebody else's corporation, there
are frequently a lot of contingent liabilities that are going to attach
that the buyer may have no idea about and sometimes even the seller may
not know. That could be an issue as well.
Travis:
Wow this is quite complex.
Yosef:
It is very complex. So far what I've said makes it sound like a stock
transfer is better for the seller and an asset purchase is better for
the buyer, but that's not always the case either.
Travis:
[laughter] OK.
Yosef:
That's why it's really important for somebody to speak to an attorney.
But, at the same time, at least our discussion could give you some
background as to what kind of issues do come up.
Travis:
OK.
Yosef:
This way you have more effective use of your attorney's time.
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