When buying a business, you will likely have the choice to buy the assets of the company or to buy the legal entity, typically a corporation. In most cases, it makes more sense for the buyer to purchase the assets rather than the corporation. Continue reading to learn three major reasons why you should buy the assets when buying a business!
Buying a corporation is attached with legal liabilities that the corporation has, or will have, based on actions that took place before you bought the company. For example, responsibility for unpaid income taxes can go back an entire seven years. Other liabilities include workmen comp claims, human relations claims such as sexual harassment, or product liability claims from customers. All of these issues can arise after the sale, and if you buy the corporation, you are assuming any and all legal liabilities that come with it.
If you buy a profitable business, you will likely pay something for goodwill, or the excess of the sale price over the value of the other assets purchased. If you buy the assets, you can deduct 1/15 from your taxable income each year for the next 15 years. However, before making any final decisions, it’s smart to get advice from a tax adviser and business broker on how to structure the purchase to get the most advantages.
In a stock sale, you assume the seller’s balance sheet. However, the previous business owner will often write off hard assets, such as furniture, equipment, vehicles, and more for tax purposes. This makes the value of the assets on the balance sheet lower than market value. In an asset sale, on the other hand, the price paid for the hard assets are the current market value. The benefit of this is that the depreciation period is shorter than the 15 years that goodwill is written off.
Before buying a business, it’s important to work with expert business brokers who know exactly how to handle the process. Whether you’re looking to purchase your first business and become an owner for the first time, or are a seasoned franchisee looking to expand, Atlantic Business Brokerage can provide you with a variety of purchasing opportunities to meet your needs.
Buying With Atlantic Business Brokerage, Inc.
At Atlantic Business Brokerage, our mission is quite simple; we help sellers sell businesses, and buyers buy businesses! Over the past 30 years, ABBI has facilitated the sale of countless commercial properties, businesses, and franchised locations. With our unparalleled knowledge of the business purchase and sale industry and our network of contacts, we offer services to both buyers and sellers that no other brokerage firm can match.