Purchase price impact of asset sale vs LLC member equity

May 24, 2021

by a searcher in Boulder, CO, USA

My deal may need to change structure from an asset deal to buying out the owners membership in the existing LLC. I understand the legal and tax implications but struggling to find anything out there on how much to reduce the acquisition price to account for the change in structure. Is it just the calculated difference in taxes? At present value? Do I account for the owners ability to apply capital gains on their side? Anyone have experience in comparing the two?

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

My first reaction is what drives the decision to buy LLC interest? Should not be tax, even though seller's advisors are very likely saying so. Almost all the time I have to overcome such advise by seller advisors. If there are contract and IP drives such structure it is a different matter. In this situation there is a tax impact to you that can be quantified (my software does that. www.BVXpress,com). 338(h)(10) will help you with IP/contract transfer but it does not save taxes; either buyer or seller incur taxes as-if it was an asset sale. Please contact me if you want to talk, redacted

Reply by a searcher
from IE Business School in Madrid, Spain

You must take into account the risk involved in buying the shares instead of just buying the assets. The value of these contingencies should be the decrease in the price you propose to the owner. Have you already done your due diligence?

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