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Zero money down acquisition: questions

$0 down acquisition

How should taxes and books look for a client who wants to acquire another client's company for $0 down but with a guarantee to pay %25 of net profit for 5 years?

How would the payment look in the books?
How would the payment look on taxes?

 

Thank you kindly for reading,

Eric

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By jrr404
Mar 21st 2016 02:11

How would the payment look in the books?
--There would not be a payment on the books because you have to wait until the end of the year to figure out what the NP is going to be. Then, you would open your books the following year and record a credit to cash account and a debit to the Est. debt account. It will be up to you to figure out what the payment will be each year based on historical figures.

How would the payment look on taxes?

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By Clinton Lee
Mar 28th 2016 20:05

How it looks on taxes would depend on how the deal has been structured. Is the previous owner surrendering 100% of the shares at the start, or is his shareholding subject to some phasing out arrangement?

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