Pros and cons of the formation

Why Form a Corporation? Deciding whether or not to incorporate is an important choice to make when starting your new business. As with any legal structure, corporations have certain advantages and disadvantages.

Pros and cons of the formation

Pros and cons of the formation

Which structure is right for you depends on your circumstances. This post discusses some of the pros and cons of each deal structure. Two ways of structuring a business acquisition In an equity sale, the buyer purchases the equity from the owner or owners of the target company — stock in the case of a corporation and membership interests in the case of a limited liability company.

The business is transferred to the new owners, corporate or limited liability company entity and all, and the target i. There is no change in the status of the target entity itself, and its contracts, assets, and liabilities remain with the entity.

In an asset sale, specified assets are transferred from the target company to the purchaser, while the corporate or limited liability company entity remains in place and continues to be owned by its owners.

The result is that the entire target company, including its assets and liabilities, is now held by the buyer, with the target company remaining intact.

Two ways of structuring a business acquisition

The selling equity holders are left holding the cash. In general, buyers prefer asset sales and sellers prefer equity sales. Tax considerations An advantage to the buyer of an asset sale is that the buyer can allocate the purchase price for tax purposes among the various purchased assets to reflect their fair market value.

In addition, some states impose taxes on transfers of real property, which can often be avoided if a transaction is structured as an equity sale. A disadvantage to the seller of an asset sale is the double taxation that can result if the target is a C corporation. The sale of assets is generally a taxable event that results in the assessment of tax at the corporation level.

The sale proceeds are taxed again when they are distributed to the shareholders in the form of a dividend. In contrast, in an equity sale, the seller generally pays the applicable short-term or long-term capital gains rate on the sale of his or her stock, and there is only one level of taxation.

Governmental authorizations, permits, and licenses Some governmental authorizations, permits, and licenses are not transferable. If the target company holds such permits and licenses, an equity sale might be preferable to avoid the necessity of transferring them to the purchasing company.

State corporation laws State corporation laws need to be considered when a business is sold via an asset sale. Fraudulent conveyance laws If the target company is financially distressed, transfers for less than reasonably equivalent value might pose issues under the federal bankruptcy statute or state fraudulent conveyance laws.

So which structure is best for you? There are several pros and cons of each choice.

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For something so simple (even babies do it), sleep isn’t such an easy thing to master.

Learn about the advantages and disadvantages of arbitration.

Both too little and too much time dozing has been linked to a host of health problems, from obesity and. In the past few decades, arbitration has become a mainstay in resolving legal disputes.

Whether you've signed a contract with mandatory arbitration language buried within or are considering arbitration as an alternative to litigation, it pays to learn the pros and cons of arbitration.

Arbitration Pros and Cons |