Selling a C-Corp: Stock Sale vs Asset SaleBy James Blake on
Selling a corporation is generally achieved by either an asset sale or by selling all company stock. When selling a business in Texas, selling the stock of a C-corporation rather than just selling the company assets often results in better tax results for shareholders with capital gains treatment. Additionally, business investments made during 2011 may also enjoy large tax exemptions for profits made on the sale of corporate stock.
But selling C-corp stock transfers every part of the corporation to the buyer – including all hidden or latent liabilities. These risks could be very unattractive to a potential Buyer, and could eliminate a buyer’s desire for a stock sale, rather than just a company asset sale that could result in lower profitability for shareholders. Advice from a qualified Texas corporate lawyer during the formation and operation of your business can position you to maximize value realization when you are selling a business or engaged in a business buyout.
Obstacles to Selling Company Stock of a C-Corp
Often, selling C-corp stock instead of selling corporate assets can be difficult due to liabilities and corporate law mistakes made early in the incorporation and initial corporate operations. For example, a C-corporation may be breaking the law as a “hidden franchise,” or may have poor contracts and leases with third parties, drop-out founders, or may operate using tainted intellectual property rights.
The asset structure and the kinds of assets held by a company can also be an obstacle to a stock sale. For example, a company that holds valuable IP and real estate in the same corporation may have a difficult time finding a buyer who is interested in acquiring both the IP and the real estate through the purchase of the stock of the company. Avoid these problems and others by getting advice from a Texas corporate lawyer early in the formation and operation of your business.
Mixed Corporate Asset Sales & C-Corp Stock Transfers
Selling a business of any type is always a matter of compromise. Shareholders selling corporate stock can compromise with a mixed corporate asset sale and stock transfer agreement. The Buyer could use two entities, one to buy corporate assets, the other to buy the corporation by buying all of the corporate stock. Skillful structuring of the business buyout by a Texas corporate lawyer can allow both parties to “win” in some ways: the Seller gets some profit qualifying as capital gains, while the Buyer can carve out certain liabilities with claw-back provisions and use other means to limit liability.
To ensure that you maximize the value of your business, it’s vital to make business law strategy a core part of your business formation and growth. Our Texas law firm regularly advises clients in corporate law matters. Contact our law firm in Austin today to speak with a corporate lawyer in Texas about selling a business or a business buyout.
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