So it’s finally happened, a larger company has started paying attention to your little enterprise and has expressed interest in acquiring you. This is it. This is the point where all of the long hours and hard work finally puts a big chunk of change into your pocket. Except, maybe not. Depending on how you sell your company you may end up losing as much as 60% of your sell value to the dreaded taxman.
It’s time to talk about everybody’s favorite subject: taxes. To be specific, we’re going to talk about how to make sure that your hard-won sale doesn’t vanish into the ether.
When tax time rolls around, the main thing the IRS pays attention to is whether you sold your stocks or your assets. If you sold your assets, the acquiring company gets to write off their purchase as a business expense and net a generous tax break because of it. If you sell your stocks, however, the tax burden winds up on your acquirers.
This means that every acquirer is going to do what they can to make sure that they acquire your company’s assets instead of your stocks. Getting around them buying you like this can be a tough challenge because it effectively means convincing them to pay more for your company.
Nobody wants to pay more for what their buying, but there is a way around it. To get them to pay more, you charge them less. How do you do this magical thing? By giving them a discount on your stock. By giving them a discount, you can discourage them from pursuing your costly assets. This will leave your acquirer with the greater tax burden and let your ride off into the sunset with more of the money you deserve.