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Question for the Money Doctors

Question submitted on Jan 7, 2014.

Question

I''m a sole proprietor of a small business brokering advertising specialty items inherited when my husband died. I want to retire and simply give the business to my son who has kept it going as the salesman. There is no business if he doesn''t sell. No assets but good profits. What can I do simply? Close the business and he starts his? But the name carries weight with customers and vendors. Advice please.

Answer

If the business is a sole proprietorship and your son is the only salesman, your suggestion that you simply close the business and your son begins his business may work. If however, the income from the business is significant, you may want to take a closer look at things.

There are tangible assets, even if they are only samples and catalogs. There may be value in the intangible assets, such as customer lists, vendor relationships, goodwill, etc. If the net income generated from the business is significant you may want to have a business valuation prepared so that the ownership transfer to your son is an "arm''s length" transaction. The Internal Revenue Service could argue that there is a gift from you to your son if the transfer is for less than fair value. Talk with your CPA or a tax attorney to determine whether or not you should have a business valuation. If your advisors are not concerned over the value of the intangible assets, they will probably suggest at least a written agreement transferring any and all assets of the sole proprietorship to your son.


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