Transferrable Intangible Assets. 

Cash flow is what adds value to your business.  The value of your business to a potential buyer can be measured based on the expected future cash flow.

The price someone is willing to pay depends on the predictability, sustainability and the growth of that future cash flow.

Key elements of value depend on the continued presence of the key tangible and intangible assets which have been developed.  They sync to produce a product or service.

Intangible Assets:

Your workforce:   This includes the experience, education or training of the workforce. A study of (McKinsey & Company) 13,000 executives from 120 companies and case study of 27 leading corporations, found that talent will be the most important resource in the next 20 years.

Information base:  This includes business books, records, operating systems and other information base. This includes customer related information base, accounting or inventory control systems, customer lists, newspaper, magazine, radio or television advertisers.    This relates to a systemized system of your operation.  A business with a systemized operation/process for producing and selling products or services, has a higher value.  By having a developed and documented operating system (like manuals), you create more value to your business which a buyer is willing to pay a premium for.

Supplied-Based intangibles: Sometimes a business may have a relationship with another business who is exclusive.  This could be anything from a unique part of an engine to space in a major store to sell products.  This can be favorable supply contracts, or favorable credit ratings.  This helps with the future value of the company.

Licenses and Permits (private or governmental):

Covenants not to compete:  For example, an exclusive territory which competitors can’t compete in.

Franchises, Trademarks and Trade Names: This give exclusivity to the organization.    Trademarks, and Trade names.

Government Licenses and Permits:  Any right or license granted by a governmental unit is an intangible assets. The right to use, sell, or service in an area which is unique just to a business will add value to the concern.

Going Concern Value: A going concern value is the additional value that attaches to the property by the reason if its existence as an integral part of an ongoing business activity.

Absence of contingent liabilities: A business not having pending litigation, tax audits or breaches of contracts.  Also, a company without negligence claims, product liability claims and other contingent liabilities is considered an enhancement of a business.

Goodwill: Goodwill is attributable to continued customer patronage expectancy.  The goodwill can create value because of the reputation, along with other factors of the trade or business.     The public perception of a business.


Transferring Stock does not mean you have to give up control. 

  stock option plan is an option to give the key employees more incentive to stay with your company and potentially purchase your company.   Usually the owner will sell to the employee (or employee group), 10%-25% in total.  The amount of the stock will always be less than the majority of the stock.   

 The key person has a better chance of financing future stock purchases from financial institutions by owning this amount of stock in the company.   This creates the building blocks of a future sale for the current owner.  

This percentage of ownership doesn’t give the key employee control of votes during shareholder meetings.  The majority owner can maintain control over the voting as long as the Articles of Incorporation and the Bylaws have been properly structured.   

Another options is to issue only non-voting stock to the key employee(s) in Tier 1.  By amending the corporations’s Articles of Incorporation, you can issues non-voting shares.  You can even do this with S corporation.  The one class rule of an S Corp does not apply as non voting stock is not considered a second class of stock for purposes of this rule.   


Usually corporate laws generally require at least two-thirds approval by the shareholders when the corporation has a major event as selling the company to a third party.    As long as you maintain at least that amount of percentage ownership, will have the ability to control the decision regarding a future sale.  Continue reading “Transferring Stock does not mean you have to give up control. “


In some cases, when a business owner wishes to sell their business, they may not be in the best possible position.  For example, they may be a C corporation.  Because of the double taxation of the C corporation, it does not create an effective tax environment for selling the business.   Consequently, positioning to a pass-through entity would be more advantageous.  However, that takes time to arrange.

The principal advantage of this flow-through entity structure is that dividends can be paid by the company to the owners without additional tax.  In other words, the dividends can be placed into the hand of the owner with having only incurred taxation to the owner, not to the corporation and then the owner.

Under a C corporation, when the corporation distributes dividends (distribution) to the stock holders, the corporation must pay a tax on the corporate side, then the recipient pays tax on that distribution.  Dividends are not tax deductible to a corporation, so consequently there is the double tax. Bottom line, double taxes!

When you have an S corporation or LLC the Key employees can receive its share of company dividends free of additional taxation and use the dividend proceeds dollars-for dollars to pay for their stock investments.

It is important that in the future when you consider exiting your business, you start the process of planning with the most effective tax structure for the future. The C Corporation is fine when you are not in exit mode, and there are no dividend distributions.

Timing is important as it takes time to move from a C corporation to another form of pass through structure, such as a LLC or S corp.  Early planning will be a benefit.

A change from C Corp to a pass-through company can have tax ramifications, so planning is essential in when to, or if to, make this move.

Tax on Assets:

If you sell an asset of the corporation, it is possible that there is a corporate tax on that sale.  However, if you sold an asset of an S corporation, there would not be a corporate tax.

If you are considering changing your business type, we suggest you discuss this strategy with your tax advisor.