AboutRobert Doblmeier, M.Sc. Expertise I am happy to answer questions about Small Business Sales i.e. Small businesses with Gross Sales in the 250K to 50 million dollar range. The business must be privately or closely held(no publicly traded companies).
Experience Why me? I am a full time business broker with a 14-year history in real estate in New York and Florida. I taught the New York State Licensing course for 2 1/2 years. I am the winner of VRs’ Prestigious Bronze Award for 2006, and a major reason my office won the Centurian Award in 2006. After just seven months in this office, I closed the deal that resulted in the largest single commission in our offices’ history, a record that stood for over 1 full year. I am an instructor for the Small Business Development Administration, teaching a course I designed and created called "How to Buy a Business". I am a Certified Networker and have won the Notable Networker Award three times in one year. I am also an instructor for the Referral Institute, teaching the Referral Pipeline course. In 2006, I was nominated to the Presidents' Business Advisory Council on Small Business. Most importantly, I have amassed a large database of recognized professionals that can facilitate your transaction.
Organizations The Referral Institute, Business Networking International, International Business Brokers Assoc., German American Business Council,
Publications Small Business Development Corp. and various private newsletters.
Education/Credentials B.Sc. Stockton College, M.Sc. Long Island University,
Awards and Honors Centurion Award for 2006, Bronze Award for 3Q 2006, Recognition for the First SBA loan done in the Office.
Past/Present Clients I can not , for reasons of confidentiality name past or current clients. I can name industries where I have facilatated a transaction: marine, furniture, beauty industry, education, food service, automotive, home improvement, construction, and tax industry.
Question I a currently looking into buying a small S-Corp. The seller has a couple concerns regarding the sale. 1) If this is a 'stock' sale as versus an 'asset' sale, I take on the liability of past work. 2) While keeping the name of the company in a stock sale, I would lose the depreciation tax the corp currently benefits from. If we switch to an asset purchase, the asset depreciation tax is not an issue.
Questions:
1) Is taking on past liability common in the purchase of an S-Corp and is there any way to reduce some of the liability (outside of insurance, which will be purchased regardless of type of sale)?
2)Can an IRC section 338 election be used in a sale between a private party & a corp or is it specific to one corp buying out another?
Answer Sorry for the delay but I wanted to get you the right answers and not just a quick one. Realize that regardless of how amiable the situation is, it is still adversarial, so tread lightly and negotiate.
I am assuming that this is a person -you- buying an S corp. from your letter.
In reducing the liability, first calculate what you GAIN by assuming it. Deposits, credits and history with vendors, utilities, and landlords. Then look at the risks. What is the past history and how does it reflect on the company's current operating modus. Have there recently been great changes over a small time so that things are substantially different and there is not enough time to get a good feel for liability into the near future. A business insurance expert can help you with this, or a Third party risk analyst. Next you can ask for off sets against reasonable risk. Drawn down and paid to the seller over time from an escrow account specifically for this. This is the negotiation. I have also seen specific risks assigned to the seller up to the date of closing for the work the seller did, at which point it diminishes to zero over a specific time. from then on the buyer assumes the risk for the work the buyer did.
Barring these options your left with insurance, but using the above strategy could also reduce the cost of that insurance.
Now for IRC 338 From the research and interviews I have done, no one knows of it ever being used other than Corp to Corp. This is very complicated tax law and the triggers and requirements are very specific. Each case must be weighed on its own merits because everyone is different. The application of this, like the assumption of stock & the concurrent liability, needs to be calculated using the real numbers in the deal to see if its applicable. ie if corp A assumes corp B using 338 it incurs a tax liability of 300 dollars but acquires an applicable tax credit carryover of 500 dollars the net benefit is 200 to the acquiring company. Hence with out real figures it is impossible to tell if IRC 338 is the right strategy, each target is going to be different.
I hope this is helpful and would appreciate hearing feedback on this one.
