Depreciation & Amortization
September 17, 2024
by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Los Angeles, CA, USA
Any comments/guidance on the following will be greatly appreciated:
1) Confirming my understanding: if we purchase 100% of a company, we can allocate the purchase price over 15 years as goodwill amortization. Is this correct? Any nuances to be aware of?
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2) If we buy the majority of a business, e.g. 80.1%, are we able to allocate that 80.1% of the purchase price over 15 years, or are there any considerations we need to be aware of?
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3) let's say we buy 80.1% of a company that's depreciating a lot of equipment, ~$1M per year, does the change of control affect this? Will we be able to continue to depreciate this equipment the same way, or is there any reset in the asset base valuation?
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4) Debt Financing: let's say we need to borrow $5M and the company has $2M in assets. If we go to a bank, would we be able to borrow $2M via asset based lending and $3M via cash flow based lending?
Thank you!
from Massachusetts Institute of Technology in Apex, NC, USA
2) Depends on legal structure how your tax situation will shape up - C corp - won't matter - company will run one set of depreciation. LLC, S Corp and you'll get a K1 which represents 80% of ownership. Honestly, depreciation/amortizaiton is what it is irrespective of ownership percentage but legal structure will determine what hits you personally..
4) - cash flow lender is going to want those assets as collateral so not as simple as going to two sources for two loans. More than likely best bet is to go to a single lender (SBA broker actually best IMO as they'll shop lenders) and then they'll figure out how to make it happen that fits their risk profiles and the business particulars.
from Wright State University in Bellefontaine, OH 43311, USA
1) Are you buying the assets or the entity? If the entity what type of entity is it? If assets what are the assets, goodwill would be the amount not allocated to tangible assets (question 4 makes me think there maybe some) and would be depreciated over 15 years, the tangible assets would be depreciated based upon their asset class.
2&3) Is this an equity roll-forward on an asset purchase or are you buying into the existing business? What type of entity is the existing business if you are buying into it? If it is a partnership has a 754 election been made or will be made?
Lots of additional details would need to be provided to give adequate answers to these questions. Happy to have a discussion about an engagement for us to answer these for you but the granularity here does matter and you need to get these answers from someone who knows the ins and outs of your deal.