Selling a Business: Tax Planning with Structured Sales

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Maximizing value from the sale of a company is more than just getting the highest price when selling a business. Selling a company with optimized tax planning and tax strategy prepared by a CPA and a Texas business lawyer can help you maximize your return on investment (ROI) by negotiating the sale of a company as a stock sale or asset sale, providing flexibility for higher buy-out price mechanisms and earn-out agreements, limiting buyer-default risk, and the creation of tax-deferring financial assets with a deferred payment or structured payment plan.

Selling a Company Lump-Sum vs Structured Payment

Selling a company for a lump-sum payment generally exposes you to full tax liability in the year of the sale, which can be inconvenient for some sellers. A deferred payment arrangement or structured sale of a company may help a seller to avoid or defer some tax liability into the future. At the most basic level, a promissory note can enable individuals to stay within a lower income tax bracket over a number of years, with considerable tax savings. However, it’s important to consult with a CPA and a Texas business lawyer to ensure that the structured sale of a company gives you security against buyer default.

Default Risk in Structuring the Sale of a Business

The assets or the company itself can be taken as collateral if you are seller-financing. However, seller-financing always comes with the risk of buyer default and breach of contract, potentially leaving a you short-changed. To hedge this risk, it’s often possible to engage third-party, like an insurance company, to create a structured payment plan with significantly lower default risk. The buyer pays the intermediary and the intermediary makes structured payments to the seller of a company according to the agreed payment schedule.

Leveraging Financial Assets from the Sale of a Company

Even though selling a company with a structured settlement doesn’t give you all of the sales proceeds up-front, it gives you something almost as good – financial assets! Your right to receive structured payments can be leveraged immediately as collateral for other loans that can finance another business or lifestyle activities.

If you are selling a business in Texas, maximize your ROI with a cohesive tax strategy by engaging a CPA and a Texas business lawyer. Our Texas business law firm regularly advises clients that are selling a business or engaged in a partnership buyout. Contact a Texas business lawyer today to discuss exit strategies and goals for selling your company!

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