If the owner or shareholder has a noncompete clause in place, the IRS sees goodwill as company property and will challenge any position to the contrary.
Any company considering a future sale should first engage an attorney.
Most sales take a year or two to complete, in order to set up the arrangements properly.
Waiting until the last minute or disregarding tax consequences at each step can be costly to one side or the other – or both.
Preparing for all contingencies in advance can mean smooth sailing and a satisfying transaction for everyone.
A liquidating dividend is used when a corporation is dissolving and it needs to distribute its assets to its shareholders.
Paid after satisfying all corporate debts, the liquidating dividend is meant to provide a return on investment.
In the tug-of-war over cash between buyer and seller, the taxes owed on the sales transaction may enter into the negotiations as much as the selling price.
Thus, there is a second layer of taxes when C corporations sell and liquidate.
With the S corporation, the sale results in gains being taxed only once.
When a corporation decides to shut down, it liquidates its assets.
This means that the business sells off not just any inventory it may have, but its tools of production, building and any other assets it may have.