Non-Stock Sale - Allocation of Purchase Price
When the buyers are purchasing the tangible and intangible assets from a corporation, or purchasing the business from a sole proprietor, a partnership, and LLC or LLP, the purchase price is usually allocated to some, or all, of the following components:
- Tangible Personal Property (trade fixtures, furniture, equipment)
- Leasehold Improvements
- Value of Premise Lease (if the lease is at or below market rent)
- Covenant Not to Compete (include time and distance of covenant)
- Training and Transition (include schedule of time, hours, etc.)
- Liquor License (include license type and number)
- Customer List
- Goodwill
- Buildings
- Land
- Inventory
The total value allocated to all of the appropriate assets should equal the total of the purchase price. IRC Section 1060 further delineates specific items included in each of the seven "classes" of assets.
Please be aware in states that collect sales tax on both (1) the tangible personal property and sales tax associated with (2) the transfer of vehicle licenses, it very important that the value of the Registered (licensed) Vehicles not be included with the other Tangible Personal Property on the allocation, lest the escrow officer may inadvertently collect sales tax on the licensed vehicles in escrow while the buyer will again have to pay sales tax to the licensing department when they re-register the vehicles to the new owners / buyers.
Section 1: Allocation of Purchase PriceSection 2: Stock Sale - Allocation of Purchase Price
Section 3: Non-Stock Sale - Allocation of Purchase Price
Section 4: Tax Implications - General Guidelines
Section 5: Key Points
