Issue 6 of 9: Past Liabilities

Construction Ownership Transition Issue 6 of 9: Who Will Own Past Liabilities - Asset or Stock Sale?

D. Brown Management Profile Picture
Share
Succession: Ownership Transition Issues - Number 6 Past Liabilities. Knowing who owns past liabilities. Leaky buildings? Structural failures? Other litigation?

Not only is construction a cash-intensive business, it is also a risky one.  

  • Most of those risks show up pretty quickly but some of those risks can lay hidden for months or years.  
  • Some of those risks will be covered by insurance but others can cost the business significantly.  

In an asset sale, a new construction business is formed and buys the physical assets of the old business, along with an additional amount of “goodwill” for the difference between the valuation paid versus the actual asset value.  

There are some tax advantages for the buyer in this situation due to being able to depreciate the goodwill on their balance sheet. Additionally, they only have to purchase the assets that are truly valuable to the business operations while also limiting their liabilities for anything in the past.  

The downsides include a typically worse tax situation for the seller while they maintain responsibility for past liabilities and may have to dispose of any assets not purchased. This is reflected in the valuation. 

In a stock sale, 100% of the business entity is transferred to the new owners.  

The Corporate Finance Institute has a good article summarizing both.

These are just decisions to make as part of working out a deal structure. There is no single right way for all situations, so it is good to have advisors who will help you look at all sides.


Issue 6 of 9: Past Liabilities
Continue building value in your business, yourself and your key team members with a good succession strategy....

Issue 6 of 9: Past Liabilities
Continue building value in your business, yourself and your key team members with a good succession strategy....

The Stress-Performance Curve (Yerkes-Dodson Law)
Achieving maximum performance from yourself and your team requires understanding the stress-performance curve as it relates both to individuals and types of work.
Succession Fact #3: Trust Between Parties
Succession Fact #3: No exit strategy or deal structure will work without trust between all major stakeholder groups. Whether it is a large and complex project or a business ownership transition, there will never be a “perfect” set of documents or plan.
Creating Potential and Delivered Value for Contractors
We are contractors and the contract is a tangible representation of potential value. That value is delivered when the right information, materials, and equipment come together at the right time in the hands of the right craftsperson for installation.