Selling or Buying a Small Business/Selling a business
QUESTION: I have been running a small business for about 10 years. The owner has 100% stock. He would like to get me the business due to his age but I do not have the money to purchase it outright. How can this be done legally. He was thinking a life insurance policy that would somehow pay insurance money to the company and then it would somehow transfer the stock to me. Is this possible and what would the jssues be for us.
Or do you have a better option.
ANSWER: Hello, and thank you for contacting AllExperts.
There are many ways to purchase a business "legally" without having the cash to do it. For an insurance policy to pay out, some specified event has to take place. There would have to be a reason for an insurance company to pay insurance money to a company. The company would have to submit a legitimate claim, like the assets were damaged by fire or water, or disappeared due to theft. If an owner has a life insurance policy on himself, upon his death the insurance company would pay insurance money to his beneficiary. Otherwise, I do not know how or why an insurance company would pay a company.
What is more "normal" is for you to make an agreement with the owner to pay him for the business little by little, in payments. So, for example, let's say you agree on a price of $50,000. You could volunteer to pay him $500/month, or any amount until the business was paid for. The benefit to you is that you do not have to come up with all the cash at the time of the purchase. This is not particularly good for an owner, of course, because he may or may not end up getting all of the money. For example, if an owner is old, he may die before collecting the full amount.
Another way to do it is, to agree to pay him some amount of money monthly forever, or until he dies, in which case the debt is settled. Or to just agree on a price with him "carrying" the amount in a note that you pay on monthly. In all of these cases, it involves a "note" where you agree to pay him some amount whether in payments or full sum, under certain conditions, for a certain amount of time.
Based on the limited information you gave me, this is about the most I can tell you.
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QUESTION: Yes. The insurance policy was mentioned because he doesn't want me to have to pay for the business. He was thinking apon his death the insurance money would pay the company as the beneficiary. Then somehow the stock could transfer to me. But that is the question. Once the insurance company pays my company how can the stock be transfered to me. And what is the tax implications.
Hello, Chris. For questions involving stock transfers and tax consequences, these need to be asked of attorneys and CPA's since they are out of my area of expertise.
It is good of the owner to not want you to have to personally pay for the purchase but this is a real exception to how businesses are purchased, and maybe too much of a long shot. I would be cautious.