Be Aware of Pitfalls When Buying or Selling a C Corporation

By Tom Cobery
In February 18, 2016

First and foremost, always consult your tax advisors when contemplating an acquisition, whether you are a buyer or a seller. Remember that the true cost or return of any acquisition or sale is the amount left over after tax considerations.

There are two major items that a BUYER should be concerned about when purchasing a C Corporation:

  1. If you purchase the stock of the acquired company, you will likely not get a step-up in basis on the fixed assets acquired.
  2. By purchasing the stock of the acquired company, you will be liable for any contingent liabilities that might arise after the sale. Items such as employee lawsuits relating to actions which occurred prior to the acquiring company’s ownership, will become your responsibility.

The SELLER needs to be aware that because of the items listed above, it could result in double taxation to them. Most sales of a company are completed by the acquiring company purchasing the assets of the selling company, not the stock. The selling company pays a corporate tax on any gains relating to the sale and when the proceeds are distributed to the shareholders they pay tax on the distribution, which is double taxation to the seller.

If the selling corporation is an S Corp. this double taxation can be avoided. However, changing from a C Corp. to an S Corp. is subject to many tax regulations relating to “Built in Gains” and timing. These items are complex and need to be discussed with your tax advisors.

If you want to chat, give me a call at 201-523-6326 or Email me at tcobery@epicomm.org.

Tom Cobery

Dealing with the day-to-day needs of running a busy printing operation often leaves company leaders little time to plan for the future of their enterprises on their own. Tom works with chief executive officers and senior management executives in the Tag and Label Industry to develop growth opportunities through strategic transactions, new markets, or new service opportunities. Available for consulting on individual projects, he can also be engaged to serve as an Advisory Partner, helping executives guide their company into the future, serving as an impartial sounding board for ideas, and working with them to set the right course for continued growth and greater profitability. Tom’s personal experience as a Tag and Label Industry company president and chief executive officer, plus his extensive networking with other industry executives through his volunteer leadership activities with the Tag and Label Manufacturers Institute (TLMI) give him a unique perspective on the tough issues today’s company leaders face in this specialized segment. Companies engaging Tom will find his insight and independent advice an invaluable asset in helping them achieve their growth and profitability goals. More than a consultant, Tom Cobery wants to be your trusted Advisory Partner.

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