Client Alert

What should your exit strategy be?

Part of being successful in business is knowing when to get out of the business. As such, having a solid exit strategy should be as much a priority for business owners as next year’s business plan. An exit strategy should include plans for how to minimize taxes when you actually sell the business.

However, your tax minimization strategy may be different depending on who you sell the business to. Essentially, plans to transfer the business to family members should be (and often are) different than selling it to an unrelated third party. For instance, if you intend to transfer the business to family members (i.e. children), there are two examples of how this could be done. You could gift the business to the children (especially if they are married) and not compromise your entire lifetime gift tax credit.

You may also arrange for the transfer of the company after your death and have it duly distributed through your estate. However, there may be a problem with estate tax issues depending on how much wealth the company accumulates between now and the time of your death.

Conversely, selling the business to an unrelated third party may create separate tax issues because of the capital gains taxes that may arise because of how much the company could have increased in value. There has to be a plan for minimizing taxes in these circumstances, because you don’t want profits that could go towards funding your retirement compromised by taxes.

If you have additional questions about savings strategies when selling a business, an experienced attorney can help.

Posted in Client Alert, Succession.