Legal Question in Business Law in New York

selling small business

I'm selling a small typing business. I know the buyer personally and we decided to have her attorney draw up the contracts and split his fee. The purchase price was $31,500. The contracts allocate $5,000 ''goodwill'', $20,000 equipment, $6,500 additional compensation to be paid by the end of the year. I'm wondering what the tax consequence of this allocation means to me. Do I have to pay taxes on goodwill? Any info would be appreciated.


Asked on 6/07/08, 6:54 am

3 Answers from Attorneys
Nancy Delain Delain Law Office, PLLC

Re: selling small business

If you don't have a lawyer, you need to hire one BEFORE you sign any contracts with your buyer. Mr. Markowitz is quite correct; the one lawyer ultimately must represent his/her client (your buyer), and not you, and this will mean that s/he will write a contract to favor his/her client. Without someone there to represent your interests and tone things down a bit, you can end up getting screwed to the wall.

You're welcome to give my office a call to discuss your matter. I represent small business buyouts from the buyer's and the seller's sides (in different transactions, Mr. Markowitz :-) ) quite regularly.

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Answered on 6/08/08, 2:01 pm
Michael Markowitz Michael A. Markowitz, PC

Re: selling small business

Major problem having 1 attorney for both parties. Certainly there is a conflict of interest.

Sales tax must be paid on the $20,000 equipment. However, the deduction is over a shorter period of time. I do not know what "additional compensation" means. Tax consequences reflect allocation.

You should have a no-compete clause in the contract. You should have various clauses to preserve the company pending the sale. Finally, you should have an independent accountant review financials, and have a clause in the contract concerning representations for the financial records.

Mike.

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Answered on 6/07/08, 2:54 pm
NEAL SPECTOR, ESQ. NEAL S. SPECTOR, P.C.

Re: selling small business

Why don't you ask your lawyer? It is unethical for another lawyer to advise a client presently represented.

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Answered on 6/07/08, 3:40 pm


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