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Business Goodwill

According to USLegal.com definitions, goodwill is defined “as the difference between the fair market value of a company's assets (less its liabilities) and the market price or asking price for the overall company.” In many cases, a company can achieve a dominant position in the market with the help of factors like research, management talent, advertising, and timing. This position makes it appealing for another organization to buy it at a high price. The reason the first company is able to achieve this and ask for such a high price is because of its intangible business asset which is goodwill.

Listed below are a few questions answered by business lawyers on issues relating to business goodwill.

Do I need two contracts to sell my insurance agency which is a closely held C-corp? Does one contract need to be for personal goodwill and the other for non-compete and hard assets like computers, furniture, and business goodwill?

You could include all the assets being sold into a single contract. In addition, you could probably sell the stock of the C-corporation, instead of simply selling the assets. If you choose to do a stock sale, the buyer would have to take on all of the liabilities of the company unlike an asset sale in which the liabilities should stay with the C-corp. Therefore it might be in your interest to do a C-corp stock sale.

I want to buy a gas station and C-store without real estate in Indiana. The seller says that the selling price is an upfront payment and there will be a $9,000 monthly lease. This means that I will be buying nothing but the business's goodwill. Am I not entitled to get any assets like dispensing pumps, signage, interior refrigerators etc. along with this sale?

Certain chain stores or franchises can sell in this manner without transferring their assets. If this isn’t a chain/franchise, it may not be sensible to enter into such a deal unless the store is based in a location in which you will be able to get a good return on your investment. However, the law doesn’t stop anyone from making a sale like this and people should be able to choose to contract as they want to. Therefore, the owners can decide to sell only the business, which is just the goodwill, and keep all the hard assets and/or property.

My father did not know how goodwill works and leased the business by paying $50,000 in goodwill. Since my father is now deceased, I would like to reclaim the goodwill amount once the lease finishes. Do I have a case to sue to reclaim the money?

Since goodwill is seen as an intangible asset, it is not something you can get back from the landlord or the lessor of the business. It is essentially the value of the right to operate a particular business in a particular location under a particular name. Therefore, it isn’t something that can be reclaimed unless the business is sold or the current lease is sublet to someone else.

When a business is sold, the sale could include intangible assets like patents, trademarks, licensing agreements, and copyrights that can be identified and given a certain value. The rest of the intangible assets being sold are usually categorized as “goodwill” and include assets like a business's reputation, customer lists, brand names, unique market position, good location, knowledge of new technology, and special skills or operating methods. It may be difficult to assign a value to these assets but they play an important part in adding to the total value of the business by convincing the buyer that the company has the capacity to earn more and make a greater profit.
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