Business exit planning requires making important decisions. For instance, you must decide if you are going to sell your company or pass it on as a gift. Who will you transfer the company to: family, employees, co-workers, or perhaps an outside party? Should your plan take effect now or when you die? If you intend to sell your company, there are three strategies that you should consider with the advice with your attorney, accountant, and lawyer.
Buy/Sell Agreement
One essential tool used in selling businesses is the buy/sell agreement. This is a legal document that specifies the details of the transaction. Factors like who, when, and at what price are clearly outlined in the contract. A buy/sell typically allows the other owners, or the business itself to gain ownership of the company at a price set ahead of time.
Like all contracts, a buyout helps you prevent difficulties in the future. Unfortunate consequences due to your death or disability can be avoided. Work delays, business closing, liquidation of inventory or funds or a hostile acquisition by an outside party can all be prevented with a buy/sell contract.
The capability to set the selling price as the taxable worth of your business interest makes a buy-sell agreement particularly useful in estate planning. Settling on a price can help ensure that the profits are distributed fairly. Also, if your death forces the sale the business, the IRS' approval of your sale price as the taxable worth can minimize taxes on the estate. In addition, because financing for buy/sells are typically arranged when the contract is triggered, you can assure that your funds are accessible when needed, allowing your estate to have liquidity that you may need for taxes and fees.
Private Annuity
A second method you should consider utilizing is a private annuity. This course of action allows you to sell your interest in the company to either family members or an outside party. The buyer essentially makes a promise to pay the amount of the sale price in installments. One option is to have the buyer make timely payments to you for the remainder of your life (single life annuity). Since a private annuity is a sale and not a gift, it lets you remove funds from your estate without having to incur estate or gift taxes. In the past, transferring funds for an unsecured private annuity allowed you to spread out gains without paying capital gains tax. Unfortunately, latest IRS rules have eliminated this benefit for most transactions. If you are considering a private annuity, make sure you get your CPA, tax advisor, and financial adviser involved.
Self-Canceling Installment Note
Another tool that can facilitate selling your business is a self-canceling installment note (SCIN). This contract lets you transfer your share of the business to a buyer in exchange for a promissory note. The buyer must then pay a series of installments under the contract, with the stipulation that the remaining installments will be repealed upon your death. As with private annuities, SCINs allow you a lifetime of cash flow without having to pay gift and estate taxes. An additional advantage (that private annuities don't provide) is a security interest.
In utilizing these methods to sell your business, you can assure that your sale yields the best financial results possible. These methods will also give your business stability and can allow you to reduce estate and gift taxes. But more importantly, these tools will give you the funds to retire comfortably.
Buy/Sell Agreement
One essential tool used in selling businesses is the buy/sell agreement. This is a legal document that specifies the details of the transaction. Factors like who, when, and at what price are clearly outlined in the contract. A buy/sell typically allows the other owners, or the business itself to gain ownership of the company at a price set ahead of time.
Like all contracts, a buyout helps you prevent difficulties in the future. Unfortunate consequences due to your death or disability can be avoided. Work delays, business closing, liquidation of inventory or funds or a hostile acquisition by an outside party can all be prevented with a buy/sell contract.
The capability to set the selling price as the taxable worth of your business interest makes a buy-sell agreement particularly useful in estate planning. Settling on a price can help ensure that the profits are distributed fairly. Also, if your death forces the sale the business, the IRS' approval of your sale price as the taxable worth can minimize taxes on the estate. In addition, because financing for buy/sells are typically arranged when the contract is triggered, you can assure that your funds are accessible when needed, allowing your estate to have liquidity that you may need for taxes and fees.
Private Annuity
A second method you should consider utilizing is a private annuity. This course of action allows you to sell your interest in the company to either family members or an outside party. The buyer essentially makes a promise to pay the amount of the sale price in installments. One option is to have the buyer make timely payments to you for the remainder of your life (single life annuity). Since a private annuity is a sale and not a gift, it lets you remove funds from your estate without having to incur estate or gift taxes. In the past, transferring funds for an unsecured private annuity allowed you to spread out gains without paying capital gains tax. Unfortunately, latest IRS rules have eliminated this benefit for most transactions. If you are considering a private annuity, make sure you get your CPA, tax advisor, and financial adviser involved.
Self-Canceling Installment Note
Another tool that can facilitate selling your business is a self-canceling installment note (SCIN). This contract lets you transfer your share of the business to a buyer in exchange for a promissory note. The buyer must then pay a series of installments under the contract, with the stipulation that the remaining installments will be repealed upon your death. As with private annuities, SCINs allow you a lifetime of cash flow without having to pay gift and estate taxes. An additional advantage (that private annuities don't provide) is a security interest.
In utilizing these methods to sell your business, you can assure that your sale yields the best financial results possible. These methods will also give your business stability and can allow you to reduce estate and gift taxes. But more importantly, these tools will give you the funds to retire comfortably.
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