If you established your business under a company structure as part of the set-up process there would have been shares issued, so you probably own shares in your company. Not a big deal you may think, with all the focus on the business and building it. The shares are just something necessary as part of the set up process and you may not even be holding the share certificates.
If this is you it might be an idea to have another think about it because the beneficial ownership of the company and the business rests with the shareholders. That’s OK while the status quo remains but the moment there is any change in the business the issue of who holds the shares becomes important.
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Working out your best assets
Starting up may mean launching your own venture. But it can also involve buying another business. However, be aware that the latter option isn’t hassle-free.
If you are looking for quick growth or you need scale quickly then buying a business can make a lot of sense. The hard work is to find the right business, making sure that it stacks up and then agreeing on the price.
Get past this and the hard part of the acquisition should just about be there. But there may be one more important step – agreeing the apportionment of the price across the different assets that make up the business.
Sometimes the buyer and the seller have different ideas about how to apportion the sale price. You’ll need to make a call on this because it will be required for the contract.
So does it really matter? Does it make a significant difference?
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Buying a business: More than just the sale price
If you thought reaching an agreement on price was difficult, wait until you get to the fine details of buying or selling a business.
So you’ve reached an agreement on price. But, there are differences between the parties on how the sale price should be apportioned across different assets.
A solution that’s sometimes proposed is to simply show the sale price on the contract and let both sides manage their own apportionment but this depends on what assets you are buying. Try and avoid this trap.
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CGT small business concessions rules are complex – Don’t go it alone!
Q. We are looking to sell our business and will be relying on the CGT small business concessions to reduce our tax exposure. The shares are held between two families and we have a number of different shares classes on issue. Is there anything we need to be looking at in advance of the sale?
A. Eligibility for the CGT small business concessions is tested at the time of the CGT event. This is when you sign the contract for sale of the business. If you are relying on the small business concessions to manage your capital gain then it makes good sense to have your position reviewed in advance of any sale. You should not attempt to do this yourself. You need to have your accountant or tax adviser complete this for you. The CGT rules are complex and the review should be completed by someone who fully understands all of the rules and how they will apply to your situation. They will need to have all of the facts available to test your position. Often people get caught out in this area because of small details that are over looked.
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Don’t let tax dictate your growth
Q. We commenced our business about 3 years ago. It has been growing steadily and our turnover should pass through the $2 million mark this year. A number of my friends have suggested that we are better to stay below this level for tax reasons. Are the advantages such that we should limit our present growth path?
A. It is generally not a good idea to make business decisions simply based on tax reasons. Tax should be considered in the same way as any other business expense. You should try and reduce it legally to its lowest point, but don’t let it influence the development of your business.
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