Deal structure on partner buyout

by a searcher

3 years ago

Company has two founders at 50/50 ownership. Partner B wants to exit, Partner A wants to stay onboard and maintain current role. 

Considering a 70% total equity buyout - all equity of Partner B and and 20% of Partner A. 

In this scenario, does an stock sale make more sense than an asset sale (since I am not 100% buying the business)? Also, should there be a seller financing and earnout on Partner As equity? Since he is staying on-board he still has "skin in the game"

2 likes
101 views
2 comments

professional from New York University

I agree with Rob. There are a number of factors that would drive the decision, but most buyers would want to structure it as an asset deal for tax purposes. As far as seller financing/earnouts, there are obviously advantages for you as the Buyer to structuring it that way. There are a number of ways you could consider structuring the deal, that would be driven by the size of the transaction, the tax status of Buyer and Seller, business goals, etc. Happy to discuss.

3 years ago | like reply | 0 likes

professional from Walsh College of Accountancy and Business Administration

Need more facts. Is target a C-Corp, S-corp, or a LLC taxed as a partnership? You generally want to structure the transaction (to the extent possible) so that you can get a step-up in the tax basis of the assets in order to create a tax shield. This does not always mean you have to buy assets to accomplish this. Glad to spend some time with you on a call if you want to explore. Email me at --@----.com and we can set up a date and time that works for both of us.

3 years ago | like reply | 0 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.