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Asset Sale vs Stock Sale, Capital Gains and Media Liability Insurance

     
1:00 am on Oct 2, 2007 (gmt 0)

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I'm trying to sell my website- an internet publishing site.

The buyer wants to structure the deal as an asset sale instead of a stock sale for my llc. From everything I have read and what my lawyers have told me, this means I pay income taxes instead of capital gains taxes which results in me losing out on 25+% of the purchase price.

I asked the buyer about this and they said they reason they want to do an asset sale is for liability reasons. As a small publisher they are worried that no one would come after my small pockets but once I am part of a bigger entity they could be sued for libel or slander for articles already written on my site.

They said they have no problems doing a stock sale except for this liability reason.

So my question is it possible to sign something saying I will be responsible for any liability claims resulting from articles published prior to the closure of the sale? And then could I take out media liability insurance protecting me from this? (even though most of these articles have already been written?)

4:29 pm on Oct 2, 2007 (gmt 0)

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The buyer wants to structure the deal as an asset sale instead of a stock sale for my llc.

What the heck is that (11c?). What country are you in? In the U.S., an 11c is an IRS form for reporting wagers...

From everything I have read and what my lawyers have told me, this means I pay income taxes instead of capital gains taxes which results in me losing out on 25+% of the purchase price.

Is your lawyer also an accountant? If not, you need to be talking to an accountant as well. (In the U.S., a Certified Public Accountant.) Doesn't sound right to me, but you really need to talk to a CPA.

So my question is it possible to sign something saying I will be responsible for any liability claims resulting from articles published prior to the closure of the sale?

This is commonly done. It's called indemnification. However, the buyer may be concerned that you lack the monetary resources to indemnify them, thus...

And then could I take out media liability insurance protecting me from this? (even though most of these articles have already been written?)

Not sure how available this is.

6:49 am on Oct 3, 2007 (gmt 0)

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I was trying to type LLC, limited liability corporation.

I'm looking into goodwill being taxed as a capital gain instead of income which would really have an impact in my case.

As for indemnification, I'm still looking into insurance but I'm willing to put in escrow some % of the purchase price in case a lawsuit arises within say a year.

6:29 pm on Oct 3, 2007 (gmt 0)

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If you have no immediate need for the proceeds, and the LLC will (or could) continue to exist until at least the end of the year, you can perhaps make an asset sale work in your favor.

Look into setting up a Defined Benefit Pension Trust. This can be set-up by either the LLC or you personally.

The strategy is not specific to asset sales, but to any large chunk of income that you don't need immediately and would like to put toward retirement.

I've mentioned this here before - I'd think it would be of interest to quite a few here, so I'll repeat it.

You need self-employment income in at least the amount you are going to put into the trust. That's easy to arrange, though, with a one-person LLC (or if other partners are cooperative) - you either need to pay yourself a salary or have a "guaranteed payment". You can defer this decision until the end of the year - i.e. on December 31 the LLC declares a guaranteed payment.

Positives: You can defer a large amount of income from taxation until retirement - more than any other kind of retirement plan. Not sure what the current limits are. But several hundred thousand dollars a year.

The percentage of SE income you can contribute varies according to age - up to and somewhat beyond 100% of SE income. Not great if you are 20. Fantastic if you are 50. The plans are very flexible, and permit you to make a wide variety of completely self-directed investments (you simply open accounts in the name of the trust), retirement age can be as low as 55.

Negatives: You will pay SE (social security) tax on the SE income. Apx. $1000 to set-up and $1000/year to maintain.

Talk to a good CPA.