Selling Your Company With Minimal Capital Gains

Selling Your Company With Minimal Capital GainsUMass

Related Matters Newsletter
Winter 1996

by Kevin M. Flatley, Esq.
Private Bank at Bank of Boston

Some years ago, two brothers came to my office intent upon selling their business. They each were to receive $1 million and were prepared to pay what today would be a 28 percent federal capital gains tax including better than a ten percent capital gains tax to the Commonwealth of Massachusetts. This meant a $300,000 tax payment from each of them.

Instead of paying this tax, they simply sold all their corporate assets and the buyer also bought their corporate name. This left them with a “personal holding company,” the remains of their old company, but with a new name. The personal holding company held nothing but cash.

Our first reaction is that this is no bargain for these individuals; they will be taxed twice on their income, once at the corporate level and a second time as the income is paid to them as dividends. Further, we assume that eventually someone is going to pay the capital gains tax. Our two brothers, however, never paid taxes on their income at the corporate level; and when they died some years ago, the death resulted in the forgiveness of all capital gains. The reason is that the brothers took advantage of two major benefits of the tax law. More…

Using An Investment Banker In Merger/Acquisition Transactions

Using An Investment Banker
In Merger/Acquisition Transactions

by Robert Kleiman

One of the most important development on the U.S. business scene in recent years has been the increase in middle market merger and acquisition activity of a strategic nature. Large firms are attempting to consolidate smaller competitors in the same line of business or vertically integrate forward to the ultimate consumer or backward to a supplier. As a result, family controlled enterprises may be subject to acquisition overtures from expanding competitors.

Alternatively, family controlled corporations may desire to take a pro-active approach and augment the size and scope of their operations through purchases of other entities. Finally, many family controlled entities may not have a successor to the founder chosen, and accordingly these firms may put themselves up for sale.

Purchases and sales of operating businesses are normally handled by investment bankers. Investment bankers are corporate finance specialists who are comfortable with interpreting financial statements and appraisal techniques. Such financial knowledge is indispensable in determining the appropriate value for a business and successfully negotiating merger and acquisition transactions. More…