http://portlandbusinessbroker.org/2008/07/16/hello-world/ Information & Ideas on Business Sales from Business Brokers - Portland Thu, 31 Mar 2011 20:31:53 +0000 hourly 1 http://wordpress.com/ http://portlandbusinessbroker.org/2008/07/16/hello-world/#comment-6 Tue, 05 Aug 2008 04:48:50 +0000 #comment-6 I don’t normally differentiate between a LLC and an S Corp when helping clients establish a value for their business for an anticipated sale. They are both pass-through entities. However, I am not a tax expert and I know that there can be some issues if someone has converted from a C Corporation to an S Corporation (like if it sold an appreciated asset and the appreciation occurred when the business was a C Corp) so this could potentially impact an acceptable deal structure. I also think that another often overlooked difference between a LLC and an S Corp that doesn’t really impact a sale but could impact equity capital formation is that in an S Corp the profits of the business must be split based on the pro-rata shares of stock (i.e. if there was a $1 million profit that was distributed and I own 10% of the stock, then I’m entitled to $100k), whereas with a LLC you can carve up the ownership and profits differently as laid out in the LLC agreement (i.e. you could have an investor own 50% of the business, but who receives a preferential return prior to another member, of say, 7%, but because of the priority return receives less than 50% of distributed profits, but who at time of sale receives 50% of the gain). Another thing to keep in mind is that most business buyers are very reluctant to purchase membership units in a LLC or stock in a corporation, and instead prefer to do asset acquisitions where the assets of the legal entity are sold to the buyer, the old legal entity is terminated, and the buyer forms a new legal entity. This helps protect the buyer from unknown or contingent liabilities and may provide the buyer with tax depreciation benefits.

]]> http://portlandbusinessbroker.org/2008/07/16/hello-world/#comment-3 Mon, 04 Aug 2008 20:24:50 +0000 #comment-3 Something that I’m occasionally asked is the effect on organizational structure on marketability of the business. Everything else being equal, is there any reason why you would value of a LLC differently from that of a Scorp?

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