Corporate Law Blog

Work with experienced attorney to navigate tax issues with stock sales

In our last post, we began speaking about the recent Tesla Motors stock sale announcement. As we noted, the company is hoping that the move will help expand its business presence, a task that has been somewhat challenging.

Picking back up on the issue of taxes in stock sales, it is important for businesses contemplating a stock sale to properly structure the transaction to account for tax considerations. A couple points should be kept in mind about stock sales. On the positive side, a stock sale allows the seller to benefit from a capital gain tax rates, with some exceptions. This results in a reduced tax burden. 

On the other hand, one of the disadvantages of a stock sale from a tax perspective is that such a sale can cause a business to lose deductions for net operating losses that accumulated before the stock sale. As an alternative to stock sales, a business can structure the transaction as an asset sale, but this also involves potential tax issues. One of these issues is double taxation, which refers to the fact that a business would be taxed for selling assets and shareholders would be taxed for receiving the proceeds of such a sale.

Navigating the tax issues involved in stock and asset sales, and other business transactions, is not always an easy thing to do. Working with experienced counsel is important not only to ensure minimization of tax liabilities, but to help ensure that a transaction will help positively contribute to the overall success of a business.

Source: American Bar Association, “An Overview of Certain Tax and Non-Tax Issues Related to Asset Sales and Stock Sales,” Matthew P. McLaughlin.