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What is the best type of corporation to sell?

On Behalf of | Jul 8, 2018 | Business Formation |

Pennsylvania entrepreneurs unfamiliar with the various incorporation structures usually shy away from certain types of business formations. After all, there are some that seem to carry advantages above others. If you are considering these questions before you form your business, then you might already be a step ahead of your competition.

Most small business owners or startup leaders tend to operate right from the beginning with a solid exit strategy. Depending on the type of organization you intend to run, a C-class corporation could be an interesting structure in this regard.

As you might know, C-class companies are standard corporations. They are subject to double taxation. However, there are ways that some organizations, new companies especially, might minimize this tax burden. More relevant to this conversation, you might be able to sell a closely held C-class company taking a significantly lower tax hit than with some other business formation types. 

The method by which you might accomplish this is by selling goodwill. The Association of International Certified Professional Accountants explains this process as potentially saving businesses around 50 percent on taxes during a sale. If you were to establish a C-corporation in which you and a skilled team formed the entire company and shareholder base, then you might be able to establish the presence of personal goodwill and sell a significant portion of the company as such. 

As you are probably able to see, this type of exit strategy would not work for every new business. It is also significantly more complicated than outlined here, as various uncontrollable factors would probably also be involved, not the least of which would be your buyer. As such, please do not regard this as specific legal advice. It is simply an educational illustration of the subject.