Sell Buisness Keep a %

[hopper]

How would one sell or gift their buisness to someone but keep a percentage of the profits like royalties?
Is there a way to do this without being liable for the buisness from that point on? This would be a small service buisness that generates between $300,000 to $500,000.

 

[JustUs4All]

One idea might be to sell the business and simultaneously enter a consulting contract for the other money. This would make the income from the consulting contract ordinary income instead of Capital gains though,

 

[JustUs4All]

Another idea might be to sell the business for the total amount of money that is ultimately desired under a contract that calls for an large initial payment and installment payments for the balance that are adjusted to conform to a percentage of the income of the business. This one should preserve capital gains treatment but might be scrutinized for tax purposes as to whether it is actually a sale of the entire interest or only a sale of a partial interest with the balance actually being ordinary income like the above example.

 

[Jim Baker]

Create an Chapter S corporation that issues a limited number of Shares of Stock and have percentage of stock issued to you.

I did this about 25 years ago and sold my minority shares to the majority share holder several years later.

You need a good CPA or attorney to see it is done right to eliminate your liability for the business.

 

[JustUs4All]

Yep, that would work too.

 

[LTZ25]

Sell it and get away from it completely .

 

[treemanjohn]

How would one sell or gift their buisness to someone but keep a percentage of the profits like royalties?
Is there a way to do this without being liable for the buisness from that point on? This would be a small service buisness that generates between $300,000 to $500,000.

In gross sales or net profit?

 

[hopper]

In gross sales or net profit?

A percentage of the profits is what I was thinking.

 

[MudDucker]

Create an Chapter S corporation that issues a limited number of Shares of Stock and have percentage of stock issued to you.

I did this about 25 years ago and sold my minority shares to the majority share holder several years later.

You need a good CPA or attorney to see it is done right to eliminate your liability for the business.

This is the easiest way to get it done. However, this would yield ordinary income. An adjustable price based upon future earnings would preserve capital gains.