Selling Your Business
Book: 405
Table of Content
1. PREPARATORY MATTERS 1-1
What Is a “Business”? 1-2
Identify Your Asset Bundle 1-3
Clarify Ownership Interests 1-5
Prepare History of Business 1-7
Good Reasons for Selling 1-8
Clear Out Your Junk 1-10
Get Tax Returns in Order 1-11
Update Your Balance Sheet 1-12
2. GETTING DOWN TO DETAILS 2-1
Set a Target Date 2-2
Land, Buildings, & Structures 2-3
Leases & Leasehold Improvements 2-5
Machinery, Equipment, & Vehicles 2-6
Furniture, Fixtures, & Furnishings 2-7
Inventory & Work in Process 2-8
Tangible Assets Summarized 2-10
Precautions With Franchises 2-12
Patents and Copyrights 2-13
Licenses and Permits 2-14
Contracts and Easements 2-15
Customer Lists 2-16
Intangible Assets Summarized 2-17
3. DETERMINING GOODWILL 3-1
Pertinent Generalizations 3-2
Early Tax Decisions 3-3
No Natural Endowment 3-5
Covenant Not to Compete 3-6
Income Capitalization Approach 3-7
4-Step Formula Process 3-9
Those “Separable” Intangibles 3-10
Profit-Opportunity Method 3-12
The Residual (Hindsight) Method 3-13
4. NEW RULES ON INTANGIBLES 4-1
The High Court Ruling 4-2
Thank the Newark Company 4-4
“Section 197 Intangible” Defined 4-5
“Amortizable” Intangible Defined 4-6
More Detailed Definitions 4-7
Licenses, Covenants, & Franchises 4-9
Overview of Special Rules 4-11
For “Partial” Dispositions 4-12
When Intangibles Are Exchanged 4-13
Exclusions from Section 197 4-14
Computer Software 4-16
Separately Acquired Interests 4-17
New Class IV Assets 4-19
5. PRICING YOUR BUSINESS 5-1
Net Book Value “Plus” 5-2
Adjusted Book Value 5-3
Professional Appraisals 5-5
Multiple of Earnings 5-8
Comparable Business Multipliers 5-9
Full Replacement Cost 5-11
Closely-Held Stock 5-12
Liquidation Value: Cash 5-13
Several Methods Needed 5-14
6. CONSUMMATING THE SALE 6-1
Weigh the Buyer’s Needs 6-2
Use Advisors Selectively 6-4
The Full Disclosure Stage 6-5
Agreement on Price and Terms 6-7
Offers and Counter Offers 6-8
Avoid “Aiding and Abetting” 6-9
Typical Documents Involved 6-10
The “Memorandum” Document 6-11
Content of Sales Contract 6-12
Covenants and Warranties 6-15
Instructions to Escrow 6-17
7. BULK NOTICE & ALLOCATION 7-1
Purpose of State Law 7-2
Contents of the Notice 7-4
Separate Notice to IRS 7-5
Reportable Real Estate? 7-6
Must Use Form 1099-S 7-7
Why “Gross Proceeds”? 7-9
The Allocation Process 7-10
Allocation of Intangibles 7-11
The “Whipsaw” Problem 7-12
Consistent Positions Required 7-14
Five Allocation Classes 7-16
Form 8594 Required 7-19
Checkbox Questions Asked 7-21
Class IV Intangibles: Itemize 7-21
After-Sale Reallocations 7-23
8. THE MASTER FORM: 4797 8-1
General Purpose: Gross Proceeds 8-2
Format Overview: Part I, II, & III 8-4
The 8 Columns Identified 8-5
Section 1231: Very Special 8-7
Qualified Section 1231 Property 8-8
Part III: Must Recapture 8-9
Pars I and II Revisited 8-11
Transfers from From 4797 8-13
Focal Role Summarized 8-15
9. SALE OF PROPRIETORSHIP 9-1
The Pre-Sale Scenario 9-2
The Schedule C Sale 9-3
The Schedule F Sale 9-5
Two Forms 8594 Required 9-6
Also, Two Forms 4797 9-8
Cost Recovery Worksheet 9-10
“Expense of Sale” Allocations 9-12
Now, Form 4797 (H) 9-13
And Now, From 4797 (W) 9-15
10. SALE OF PARTNERSHIP 10-1
Introduction to Form 1065 10-2
A “Pass-Through” Entity 10-4
Partners’ Capital Accounts 10-5
Ordinary Course of Events 10-7
Sale or Exchange Treatment 10-8
Exception to the Above 10-10
Section 741 Analyzed 10-11
Must Notify the Partnership 10-12
Inconsistent Treatment Rules 10-13
Section 751 Statement Required 10-14
Reporting on From 1040 10-15
Special Reporting: Form 8308 10-17
11. SALE OF CORPORATION 11-1
It’s the Balance Sheet 11-2
Your Stock’s Book Value 11-3
C-versus S-Type Corporations 11-5
Beware of Securities Laws 11-7
Sale-of-Assets Option 11-8
Direct Sale of Stock 11-9
Part Sale, Part Redemption 11-10
Deemed Sale: 80% of Stock 11-11
Reorganization Exchanges 11-13
Summary of the Basics 11-14
Reducing the Risks 11-14
12. POST-SALE MATTERS 12-1
Anticipate a Lawsuit 12-2
Review the Warranty Clauses 12-3
Be Open to Renegotiation 12-4
Expedite Your Tax Return 12-5
Winding Down a Corporation 12-6
Form 8594 Revisited 12-9
Form 6252: Installment Sale 12-10
What the IRS Looks For 12-12
Form 8824 Exchanges 12-14
Purpose (s) of Form 8824? 12-15
The Ideal Exchange: Sec. 354 12-16 |
