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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1376
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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Subject Buying a business as a sole proprietor Should an

Resolved Question:

Subject: Buying a business as a sole proprietor: Should an individual form an LLC to make an offer to buy a company from another party? Or is it unnecessary to form an LLC to takeover another possible company (LLC, S-Corp, C-Corp, Partnership).This is not intended to be a merger. Secondary question: after a company is taken over, aren't the articles of incorporation modified to show a change in President, Chairman, & Secretary.....(with the exception of a partnership which may have to be completely re-done).
Submitted: 2 years ago.
Category: Tax
Expert:  Jax Tax replied 2 years ago.

Jax Tax : The answer to your question is it depends. It depends on the structure of the business purchased. It depends on the type of sale, asset or stock sale.
Jax Tax : It depends on the type of business.
Jax Tax : If buying a corporation via stock sale, the articles of Inc. Or the by laws would be amended if the officers changed, yes.
Customer:

Complete sale of all assets, and intellectual rights (similar to a gas station being sold). Tax returns, city licenses, and industry certifications will be responsibility of new owner.

Jax Tax : I am sorry, but that tells me nothing. I need details like the structure of the business being purchased and whether such purchase is a stock purchase or asset purchase. These are two very important items to start.
Customer:

ok. All of the outstanding stock owned by the current officers will be traded to the new owners of the company. There will be no minority ownership stock.

Jax Tax : The difference in a stock sale and an asset sale are huge, and depending on the circumstances either could be more beneficial or not an option at all. This is very important for the buyer and the seller. You should know this.
Jax Tax : If what I am saying makes no sense, then you are likely doing an asset purchase and the structure of the old business does not matter. You will need to set up your own business. An LLC is a good option. You will need your own EIN and state licenses and filing numbers. Other than in name if you keep it, your business will be completely separate from the one you are buying.
Jax Tax : Once you have your LLC, you need to determine if a 2553 sub S election is right for you. Of your anticipated profit is more than $60k per year, it is likely a good idea.
Jax Tax : You will create an operating or membership agreement rather than changing any current by laws or articles of incorporation. The old business will have nothing to do with your new business from a filing or financial standpoint.
Customer:

At $170K purchase price what are the tax implications if stock sale or asset sale? Again, this is not a merger. Plus, anticipated profit at $75K annually.

Jax Tax : I will need a list of all.asset tangible and intangible, their current basis, current fair market value, allocated purchase price, outstanding payables, outstandingly loans secured and undecided, current account receivables, and other info to answer your question. You are asking for specific answers that cannot be provided. Depending on all circumstances, the tax implications change substaintially.
Jax Tax : I have been through this enough. You are not buying a business. You are buying assets possibly including a name. You mist set up your own business.
Customer:

Thank you. I will clarify with the broker. the purchase agreement is a little vague.....you are right....it does include IP, assets, liabilities, but does not indicate entity form acquired. the current Sole Prop may be doing a DBA from his SSN....in which case I would need to create an entity....or at least form my own DBA.

Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1376
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
Jax Tax and 2 other Tax Specialists are ready to help you

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