#544 The Tax & Legal Playbook To Buying Businesses Part 2

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Nov 14, 2024

Explore the critical differences between asset and stock purchases when buying a business. Discover the tax advantages of asset purchases and the importance of a well-crafted purchase agreement. Learn about various funding options, from cash to SBA loans, and the significance of having legal counsel to navigate complexities. Delve into strategies for structuring new entities, managing partnerships, and ensuring smooth transitions. This episode is packed with practical insights to help future business owners minimize risks and maximize their investments.

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ADVICE

Use Detailed Contracts

Always use a comprehensive contract when buying a business, not a one-page document.
This avoids misunderstandings and ensures all crucial aspects are addressed.

ADVICE

Asset Purchase Advantages

Opt for an asset purchase agreement over a stock purchase when buying a small business.
This offers tax benefits, depreciation deductions, and avoids inheriting liabilities.

ADVICE

New Entity is Better

Avoid buying an existing S corp or LLC to bypass potential hidden liabilities.
Create a new entity for a cleaner start and greater control.

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In this episode of the Main Street Business Podcast, hosts Mark J. Kohler and Mat Sorensen reveal the key legal steps for buying a business, highlighting the differences between asset and stock purchases. They explain why an asset purchase agreement offers greater control, tax benefits, and protection through non-compete clauses, while exploring funding options from cash to SBA loans. With practical advice and insights, Mark & Mat emphasize the role of legal counsel in ensuring a smooth transition, reducing risks, and maximizing your investment.

Here are some of the highlights:

Mark and Mat begin with a discussion of the two main contract options: asset purchase and stock purchase.
Mark explains the tax benefits of an asset purchase, including the ability to allocate purchase price to different assets and immediate depreciation deductions.
Outline of the key elements that should be included in the asset purchase agreement, such as a detailed list of assets included or excluded in the sale.
The importance of funding options, including cash, SBA loans, and seller financing, and the need for a tight operating agreement if investors are involved.
Mat breaks down the different funding options available for buying a business, including cash, SBA loans, and seller financing.
The benefits of using an LLC or S corp for the new business entity and the importance of not buying the seller's existing entity.
The steps involved in closing the deal, including signing the asset purchase agreement, issuing a bill of sale, and handling promissory notes and releases of liens.

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