The salient features of a sale-of-business transaction

• DOI: 10.10520/EJC174680
• Pages: 24-30
• Date: 01 March 2010
• Published date: 01 March 2010
• Author: Michael Rudnicki

© SIBER INK

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The Salient Features of a

Sale-of-Business Transaction

MICHAEL RUDNICKI

INTRODUCTION

The sale of a business requires a comprehensive analysis from a tax perspec-

tive. A primary consideration of a sale-of-business transaction is whether

the contracting parties address the attendant tax consequences having

regard to each individual asset or liability, or to a collective, lock-stock-and-

barrel composition.

Businesses are typically sold at a premi um or discount to accounting

book value without allocation of the purchase price to the respective assets,

and so the question is often asked whether each identifiable asset (whether

tangible o r intangib le) and li ability ( whether co ntingent o r actual) s hould

be specifically recorded in the sale agreement, with a price attached to each.

The delegation of liabilities, contingent and actual, forms part of a sale-

of-business agreement, yet this matter and its attendant tax consequences

for the purchaser and seller often receive little attention in the sale agree-

ment.

This article discusses the salient features of a sale-of-business transac-

tion from a tax perspective dealing with the following specific areas:

• purchase- price alloc ation,

• specific purchase-price conside rations,

• purchase- price adjust ments,

• effective date vs completion date, and

• assumption of liabilities.

ABSTRACT

The purpose of this article is to address the tax consequences of some of the

key aspects of a typical sale-of-business transaction.

The article deals with the allocation of price to th e assets, and the tax con-

sequences of the compos ition of the assets.

When a business is sold, the tax consequences for the contracting parties

arising from the transfer of assets are usually considered, whereas the tax

consequences of the transfer of liabilities often are not. The latter has recently

been considered by the tax courts. This article deals with the tax conse-

quences o f the trans fer of liabil ities from seller to bu yer, part icularly con tin-

gent liabil ities.