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Business Purchase and Sale

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Accounting and Advisory Services

Business Purchase and Sale

 

Business purchase is a process through which a person gets the ownership of some goods or properties transferred in his name from another on payment of money. A legal contract creates an obligation for the purchaser to buy a product or a service and for the seller to sell the agreed-upon product or service. The agreement is sometimes referred to as a sales and purchase agreement, SPA, or separately as a sales contract or purchase contract. The P&S agreement acts as a framework for purchase and provides a detailed outline of the planned transaction.

Business purchase and sale agreement are essential documents to start the business acquisition; it provides guidance on the past, present and future operation and business value. The accounting consequence is entirely different depending on the type of purchase and sale (i.e. share sale or asset sale). Suppose it is not correctly recorded in the books. In that case, it can understate the current asset value and increase future capital gain, which may result in double taxation not only for the buyers but also for sellers.

If this deal is structured correctly, the upside is tremendous. It all depends on the current structure and terms and conditions in the agreement. Restrictive covenants are one of them. The value allocated toward the non-compete can fall under the restrictive covenants, which can save a significant amount of taxes in the future.

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