In September 2024, we hosted a webinar in conjunction with Acquiring Minds. We gave a short presentation on the legal and tax implications of common deal structures and then answered questions from the audience.
Question Timestamps
- 12:33: “I would like to turn it over to Josh for a moment to discuss the types of liabilities, such as the diligence involved and other relevant aspects. Could you briefly explain what these liabilities might mean from a buyer’s perspective?”
- 15:00: “Could you talk about the importance of depreciating assets in an asset purchase agreement, and how it differs from a tax perspective for both the buyer and the seller when choosing between an asset purchase and a stock purchase?”
- 29:39: “The next topic is corporations. To take a step back, a common question we get from searchers or independent sponsors is, ‘I don’t have a legal entity. Should I set one up now, or should I wait?'”
- 31:55: “Regarding the question of timing, when would a client coming to us choose to form a corporation?”
- 32:58: “What might indicate a good opportunity to benefit from QSBS? What would the advantage of that be?”
- 36:41: “Just to quantify it roughly—assuming I get the full benefit—not paying taxes on $10 million would amount to about $3 to $3.5 million. So if you can get it and plan accordingly, it’s the difference between having an extra $3 to $3.5 million in net worth. That’s just basic math: 30-35% of $10 million.”
- 38:15: “So, what is an S-Corp?”
- 40:14: One you know, real source of income is this one business, once that that kind of gets above a certain threshold, it generally tends to become more tax efficient for them to do an S corp election, as opposed to just continuing to hold as a partnership. And that’s why sometimes you’ll see this happening at sort of the higher levels. Is that kind of correct? Josh, would you say?
- 48:40: “I have a question about Barlow & Williams’ flat fee. Does it include legal or tax advice as offered by Josh? Josh isn’t part of Barlow & Williams, so how does tax advice work outside your expertise, Bill, James, or David? How does it fit into your cost structure?”
- 50:00: “Is there anything specific to keep in mind when using a ROBS (Rollovers as Business Startups) to purchase a business since it requires forming a C Corporation? Maybe start with a brief definition of ROBS for those unfamiliar, and then answer the question.”
- 52:37: “In the context of a stock sale for a fully remote company with no office or physical assets, are there any assets to depreciate? What assets are typically depreciated in a stock sale for a business without vehicles or other hard assets?”
- 53:53: “What are the differences in tax deductibility, specifically depreciation or amortization of goodwill, between asset and stock sales? For example, would there be goodwill amortization in a stock sale?”
- 55:17: “You mentioned some of the liabilities inherited in a stock deal. Is there a list of the most common ones to be aware of? Could you go over the usual suspects?”
- 56:54: “If one spouse has a good W-2 income and the other will run the new business, how should the buying entity be incorporated to gain any tax advantages, for example, to reduce the tax liability for the W-2 partner?”
- 58:06: “Do you think having a partner with a high W-2 salary affects how you should structure your deal? Does it impact the capital structure?”
- 59:27: “Would having a spouse with a high income make it advantageous to elect S-corp status sooner rather than later if you’re an LLC taxed as a partnership? Or is that not really a factor?”
- 1:01:08: “Could you clarify how your flat fee works? Or rather, what exactly is included in the flat fee?”
- 1:02:31: “When choosing attorneys or accountants for due diligence, how necessary is it for them to be physically located in the same state where you’re purchasing the business?”
- 1:04:00: “Are there any notable pitfalls or considerations when acquiring a sole proprietorship with a zero cost basis?”
- 1:05:30: “I’ve heard that equity compensation is difficult to manage under an LLC structure. Why is that?”
- 1:09:01: “Regarding your services, how early do you prefer potential clients to contact you in the acquisition process? Should they wait until they’re about to submit an LOI or reach out earlier, like at the start of their search?”
- 1:10:11: “Josh, do your services include the financial analysis necessary to determine if it makes sense to elect QSBS (Qualified Small Business Stock) or handle the financial implications of an F-reorg? Or is it limited to just setting up the documents and entities for those elections?”
- 1:11:07: “Can you explain some of the governance structures or requirements that make corporations more challenging?”
- 1:13:32: “This is about asset purchases in the context of SBA deals. Does the limitation on rollover equity apply only to SBA-funded acquisitions, or does it also affect non-SBA asset deals? Could you give an example of how seller rollover equity would work in an asset deal, if possible?”
- 1:16:30: “One last technical question: if I purchase a business via an asset sale and the business has significant capitalized R&D expenses being depreciated over several years, would that asset transfer to me so I could continue the depreciation?”
Workshop Handout
If you want a copy of the materials we prepared for the presentation and provided to attendees, click the button below and we’ll email it to you.
If you need further assistance or are in the process of negotiating a letter of intent, contact us at info@barlowwilliams.law and we will be happy to discuss your situation.