Ready to Sell? Part 1

We recently attended an event, Maximizing the Value of Your Business and Getting Ready for a Sale, hosted by M&T Bank. We took away some valuable lessons, which we will be sharing with you in a three-part series. This is the first post focuses on steps you should be taking long before a sale to make sure the parties that will benefit are set.  

Corporate structure is complicated. It is also an area where attorneys and tax professionals should shine for knowing all these details, but before you think you can figure this out on your own…Stop!

The first thing to consider is that the legal entity you choose when you set up your company should be revisited regularly. Keep your team of advisors apprised of your thoughts and plans for growth. Talk with your accountants and attorneys about your possible plans down the road. 

The reasons to choose a particular legal entity cannot be thoroughly reviewed in this blog post, but please see a guest post from March that outlines the different types of corporate structures. For today, here are a few of the highlights that help you understand the importance of corporate structure now and regarding potential future sales.  

• How many classes of stock to you want to issue? Do you want Preferred and Common shares? Do you want different investor rights within those types of shares?
• Do you understand double taxation? Why would anyone want to pay double the taxes? How do you minimize double taxation if a legal structure is best for you requires it?
• How do you want to allocate income? How do you want to allocate losses? Do you want to do it one way for a period of time until a threshold is reached, and then change the method?
• Do you want owners to save money in payroll taxes? How will that outweigh the other factors you are considering?
• How easy is it to change your corporate structure in a few years? Is it even an option for you to change the structure to your next preference?

Like we said, this is complicated. The key takeaway should be that there are many factors to consider over the course of your company’s life. Plan ahead and start early.

We would to like to thank the attorneys at Stein Sperling for sharing their expertise in the seminar.