Purchasing Business I Manage - HELP !!!!

[philwilkinson]

Hi everyone

I am just about to purchase the business I have worked for for 28 years, but we have come up with a stumbling block and wondered if anyone had any ideas.

The business is a car/cycle parts and accessory store and has been trading for 41 years. The cost of my purchase is approx 150k which I will pay 30k upfront and the balance will be paid out of the business profits over the following 5 years.

The owner also owns a number of properties including the shop which are included in the business. I am only purchasing the stock, goodwill, fixtures and fittings. We are being advised that having the properties in the business creates problems for my purchase. Legal costs go through the roof and the 20% corporations tax needs paying somewhere along the line (could be 10% if the properties were not an issue by taking advantage of entrepreneurs benefit allowance)

The only way forward is to make the company as it stands insolvent and create two new companies, one for the store and the other for the properties. Does anyone have any ideas of the cost of this procedure? We have had a few rough estimates of between 30k and 40k, which I feel is crazy. To take advantage of the entrepreneurs allowance I would pay 20k on day 1 of the new business (written agreement that the business is transferred to my name), after a year pay a further 25k to officially purchase business and only pay 10% corporations tax. What would be the legal implications of this?

Is there any other way of proceeding with the purchase?

Thanks for any advice given, any more information required please ask.

Phil

[turboguy]

I don't think I can be of much help since I am in the USA and the laws in the UK are very different. I think the cost you were quoted of 30-40K sounds about what I would expect. I think it could vary on how many creditors the business deals with since each would likely need to be contacted to submit any claims they have against the business. If there are few suppliers it could be a lot cheaper.

To me the tax savings hardly seem worth the added cost. I believe the actual tax rate is 18% if you don't and 10 percent if you do. On 150K you are looking at 12 grand in taxes compared to 30-40K in legal fees. Whatever you do I would expect that you want to buy the assets but not the company (which would include the liabilities including any you are unaware of.

Sorry I could not be of more help.

[philwilkinson]

Thank you for your comments

I have had meetings with my long standing accountant, but he is unfortunately coming up against brick walls and hurdles. The costs of completing the transaction keep spiraling the more people we talk to.

I was just asking if someone had an idea that we haven’t thought of and is staring us in the face. I fear not, but cant hurt in asking !!!!!

Regards

Phil

[Fulcrum]

I'm not sure I completely understand what's going on. Will you be buying everything but the real estate?

If so, why not just do an asset sale (furniture, fixtures, equipment) rather than a stock sale? This way you can buy only what you are looking to buy and the seller can avoid having to break the real estate out.