Business Sale Contracts
Business man and business woman shaking hands

What Is a Business Sale Contract?

This document has several different terms, including calling it a sale of business contract. Regardless of what you call them, business sale contracts are relatively straightforward in terms of their definition. They are legal documents that record and describe the price of the business, in addition to other information, when a business owner decides to sell the business. Something else you should know is that a business sale contract is the last step you must take to transfer ownership of the company to someone else after the business sale negotiations have ended.

Once this step has been finalized, the buyer will officially and legally own the business. The buyer requires this record to prove that they own the company that they can show to the state government. While the sale of a business contract is uncomplicated in terms of what it is, buying or selling a business is often complex and lengthy. For that reason, it is a good idea for you to consult an experienced Atlanta business lawyer if you want to sell or buy a business in Georgia.

What Should You Know About Business Sale Contracts in Georgia?

Two Methods of Selling a Business

You should also know that there are two ways to do it when you sell a business. The first way to sell a business is to acquire it via a stock purchase. The other method of selling a business is an asset purchase. There are some essential differences between these two methods of selling a business.

A stock purchase means that the business’s shareholders sell their business shares to a buyer. As a result, the buyer then takes ownership of the business’s liabilities and assets. If you sell a business this way, the seller gets contracts, leases, permits, and other things automatically transferred to them. However, the buyer also takes on all of the business’s liabilities. An Atlanta business lawyer would add that this includes contingent and unknown liabilities.

An asset sale also called an asset purchase, means that you remain the legal owner of the business as the seller. Instead of acquiring ownership of the entire business, the buyer buys some individual assets from the company. Customer lists, inventory, equipment, and net working capital are all individual assets that the seller might buy from you in an asset sale. The buyer can choose which liabilities and assets they want to take on with more discretion if they buy a business via an asset sale.

Buying or Selling a Corporation Has Different Tax Implications

Of course, there are many kinds of businesses. Simply put, the two types of businesses are those formed as corporations and those not formed as corporations. If you buy an LLC, partnership, or sole proprietorship, the purchase is generally considered an asset purchase according to the US tax code. One alternative to this is that the business being sold could simply sell its stocks to its buyer.

When an asset sale happens, many of the business’s assets will have a lower tax rate. However, some of the business’s assets are taxed at the same tax rate as ordinary income. One such example of this type of asset is inventory.

You should comprehend the tax implications of buying or selling a specific business to ensure the negotiations for doing so are fair. That is why hiring an Atlanta business lawyer is a good idea. You can also typically negotiate future and current tax debts the business may be liable to pay for due to filing tax returns. You can also arrange any outstanding liens that the company has.

Asset Purchase vs. Stock Purchase

In contrast to buying a non-corporation, buying a corporation means that all parties can choose between an asset purchase and a stock purchase. The seller prefers to structure selling the business as a stock sale because that means that the gain on this particular transaction only gets taxed a single time. Any gain you get from a stock sale is considered capital gain. Capital gains are taxed at a lower rate than ordinary income.

On the other hand, the buyer usually wants to sell the company as an asset purchase. Doing so decreases the taxable gains because the buyer can buy assets that are already qualified for immediate bonus depreciation or assets that have short depreciation periods. Legally speaking, it is completely legal in the state of Georgia to choose between the business’s sale being an asset purchase and a stock purchase if the company is a corporation.

The buyer does not assume the tax responsibilities of the business they buy if the purchase is an asset purchase. This arrangement is often more unfavorable for the business being sold since additional taxes on the final liquidation of any assets that the buyer did not buy and on asset sales could be charged.

Choose Barnwell Law Group P.C.

In the event you are buying or selling a business, you should contact us so we can provide you with excellent legal assistance. Our lawyers are highly experienced when it comes to business acquisitions. We have helped write many transactional documents for these acquisitions over the years. As a result, you can trust both our experience and our dependability. Visit our website today or call (770) 430-7604 so we can help you through the process of buying or selling a business.

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