A specialty technical services consulting company was in the process of being sold to another company, but the deal structure threatened its viability. As a C-corporation pursuing an asset-based sale, the eight selling owners faced significant tax liability in the form of double taxation — at the corporate income level and at the shareholder dividend level.
Merrimack Business Appraisers’ Approach
Lou Pereira conducted a complete valuation of the company to determine fair market value, as well as the total amount of goodwill. Through detailed and thorough analysis of each owner’s role and responsibilities, the amount of each individual’s personal goodwill was determined. This involved developing a complex, multi-attribute allocation model incorporating each owner’s level of client contact, total work hours, and billable hours.
As a result of the valuation, analysis, and modeling work, the sale was restructured to allocate part of the purchase price as personal goodwill. This enabled the assets of the corporation and personal goodwill of each individual owner to be sold separately. Avoiding any double taxation.