by Anne Lane
If you're contemplating selling your business, you should try to become familiar with the various laws that could come into play. Some laws may affect how you structure a transaction. You'll want to meet with your lawyer early on so that you can structure the deal to your best advantage within the law. Other laws will simply provide requirements that you need to comply with. Your lawyer can explain your obligations under these laws as well.
Federal tax laws are most likely to affect how you structure your transaction. The amount of federal taxes paid by both the buyer and the seller will be affected by how the deal is arranged. Both parties will want to minimize the amount of taxes paid. The buyer minimizes taxes via depreciation of assets and deductible expenses. The seller minimizes taxes by trying to take advantage of capital gains tax treatment. The structure of your business as a sole-proprietorship, partnership or corporation affects how you will be taxed as well. Federal tax laws that apply to the sale of a business are complex and you should seek the advice of a lawyer with experience in this area. Otherwise you might pay more taxes than you would have with better planning.
State tax laws are likely to apply to the sale of your business as well. This applies not only to income tax, but to gross receipts taxes and property taxes also. Your state may tax the transfer of your business or your inventory. You will also probably have to settle any current tax bills or at least address who will be responsible for them in your purchase agreement.
If you will be selling the bulk of your business inventory, you will need to comply with the Bulk Sales Act if your state has one. This act requires you to give notice to creditors in advance of the sale of most of your inventory. The purpose of this act is to give notice to creditors who may have given credit to you based on your inventory. After all, that inventory soon won't belong to you, but you may still owe them money. Or if the purchaser is assuming your debts, this gives the creditors notice that someone else will be responsible. It simply gives your creditors the opportunity to protect their investment.
Your lawyer can let you know if your state has a Bulk Sales Act and if so, what you need to do to comply. He or she can also let you know of any other laws you will need to follow and help guide you through the legal requirements.
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