FLB Law Structures C-Corp Sales that Protect Companies from Being Double Taxed

FLB Law Of Counsel Leslie Grodd has structured the sale of the assets of C-Corps in a way that eliminates a double-tax liability on shareholders. When the assets of a C-Corp, including goodwill, are sold, the corporation is required to pay corporate taxes on gains arising from the sale of the assets. When the C-Corp is then liquidated, and the remaining amount is distributed to shareholders, they are then taxed on the difference between the amount received in the payout and the basis of their stock.

The concept of who owns goodwill can be treated in two ways. Les believes that, particularly in service businesses, the shareholder-employee who does not have competition restrictions can be viewed as the owners of their personal goodwill. In determining the value of the assets being sold, it is important to appraise the relative value of the tangible assets and both personal and corporate goodwill. Once this is done, he devises two separate sales, one for the corporate assets and another for the personal goodwill. The latter agreement is between the shareholders and the buyers directly, thereby avoiding any tax to the corporation on that sale and resulting in only one capital gains tax to the shareholders.

For more information about how to best structure corporate transactions, please contact Les Grodd at grodd@flb.law.