How to sell shares of s corporation
How to Structure the SALE of a Business? | Stock Sale vs Asset Sale
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hey guys today's question comes from
mary in fort worth texas
mary asks we're considering selling our
company which is an s corporation is it
better to structure the sale as an asset
sale or a stock sale we've heard
conflicting viewpoints and want to make
sure we make the right decision
well hey mary thanks so much for
reaching out and thanks for the question
you know selling a company is a very
important decision so you need to make
sure that you're working with a great
cpa and a great lawyer to make sure that
everything is structured properly
there's no surprises when you go to
closing
mary asked her a question through our
website ask a cpa.com if you have a
question like mary head over to our
website and drop us a question
if it hasn't already been asked before
we'll create a video or a written
response on our website
now let's jump into mary's question so
when it comes to a stock sell versus an
asset sale the seller typically prefers
a stock sell
with this method we take the sales price
less your cost basis in the stock and
that's your gain the gain is a long-term
capital gain which can be taxed at
either zero percent 15 or 20
but in the year businesses sold it's
typically going to be at that higher 20
tax rate
so now let's look at an asset sale so
with an asset sale it's a little more
complicated we would take your asset
listing
and assign a purchase price allocation
to each asset
any asset that is valued greater than
the tax basis will be subject to
depreciation recapture and capital gains
tax for example if you purchased a truck
for say fifty thousand dollars the truck
was fully depreciated in the asset so
you have zero tax basis but it's valued
at say sixty thousand dollars at the
purchase price allocation you'd first
have a fifty thousand dollar
depreciation recapture and then ten
thousand dollars in capital gains
depreciation recapture is going to be
taxed at a 25 tax rate while your
capital gains will be taxed again at 20
we would also value any hot assets which
are like accounts receivable which will
be taxed at your ordinary income tax
rate
the purchase price that is greater than
the asset value would be considered
goodwill and that would be taxed at your
long term capital gain rates of 20
goodwill is typically going to make up
the largest part of your allocation
so which is better it depends on your
situation and the assets values but
typically stock sales are more favorable
to the seller from the buyer's
standpoint they generally prefer an
asset sale a buyer wants to protect
themselves from any potential litigation
from issues arising while they were not
the owners in a stock sale the new
owners could be liable for any past
mistakes of the business when there is a
stock sale of an s corporation the buyer
will make what's called a 338 h10
election which allows them to treat the
transaction like an asset purchase
additionally stock sales and s
corporations will often result in a
restructure because s-corporations can
only be owned by individuals in certain
trusts
if an llc or corporation purchases an s
corp
it's going to bust the selection and
default back to either an llc or an s
corp
hope this quick video helps explain the
difference between a stock sale and an
asset sale of an s corporation if you
have any additional questions check the
link below for a more detailed
explanation on our website thanks so
much for watching and we'll see you in
the next video take care
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![How To Sell Stock Shares Your Company Gave You [Or You Bought From Them] 💵📈](https://img.youtube.com/vi/WPvC1Mbs_g0/mqdefault.jpg)
