When you start your business, it’s easy to get overwhelmed with all the decisions you have to make, but this is no excuse for overlooking the power of choosing the right entity. When it comes time to sell the business, what you chose as your entity can make a big difference. Read on to learn more about how these choices will influence you.
- Sole proprietor: The classification of gain or loss is important here because it depends on the nature of the assets. You may also need to factor in whether you’re passing on the business to family members or someone else and make sure there’s a training plan in place.
- Corporate shareholders possess a capital asset- stock, meaning that when it’s sold, there’s a capital gain.
- Partnerships and LLCs will typically report ordinary income when the business is sold in addition to capital gain
Planning for a future that seems far off is not always easy, but a business succession planning lawyer can help. There are several steps you should take to protect yourself:
- Review your buy-sell agreement and any other business agreements
- Consider the cash value of the business and how this might influence a sale
- Plan for a clear transfer of ownership if you have a family business
Having these items documented well in advance and considering both the succession and tax implications for your business is critically important. Don’t make the mistake of overlooking these.