KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com ****************************** Comment on are there buyers for stock deal / Party Invite November 26, 2025 ************************** Comment on are there buyers for stock deal from article on November 6, 2025 ************************** Ken, Just a comment on our old friend Anon’s post asking if there are buyers interested in buying an alarm company in a Stock Deal. He states that “due to circumstances” he can’t ‘switch’ to an S Corp for about 10 years. Not sure what the ‘circumstances’ are, but it sounds like he spoke to someone who isn’t up on the Tax Code. If a C Corporation elects to be an S Corp, any assets sold in the next five years are subject to Built In Gains (BIG), that is they are taxed as if it was still a C Corporation, which eliminated the benefits of electing S Corporation status. The BIG period was shortened from 10 years to five years by Congress in 2015. If Anon’s tax advisor is telling him 10 years they should take another look at the Tax Code. The BIG period doesn’t begin until the election is made so waiting just makes it worse. There can be other issues, but they can be resolved by proper structuring of the company. This may be an indication of a larger issue. If Anon’s tax pro (the one who told him that it was a good idea for an alarm company to be a C Corp in the first place) isn’t aware of the shortened BIG period, they may not know a lot of other things about transactional accounting. Just as you have pointed out numerous times that someone’s brother-in-law, who writes wills all day, might not be the best lawyer to advise them in selling their company, most CPAs aren’t well versed in transactions either. Selling an alarm company in a stock sale is rarely a good idea. The transaction is much more complicated, the due diligence is more complicated, and the Buyer loses a lot of tax benefits and typically compensates by lowering the price. Most banks won’t allow their borrowers to enter into stock transactions so that greatly reduces the number of prospective buyers. Fewer buyers means lower offers. Selling a company, even in an asset sale, is complicated and confusing, unless you’ve done it a few hundred times. Using inexperienced professionals for legal and tax advice when selling your company is a lot like asking a handyman to install a fire alarm. They don’t know what they don’t know. Mitch Reitman 817 698 9999 XT 101 Reitman Consulting Group Fort Worth, TX 76133 ************************* Response ************************* Unless you're dealing with sales in the hundreds or millions a stock deal is rare. Typically structured by the uninformed. There could be a good reason for a stock deal, for example when the seller has non-transferable subscriber accounts and contracts or a hard to get distributorship or license agreement that would not be violated on a transfer of shares. I do have a question. Isn't there a tax code mechanism that permits a stock deal to be taxed as an asset deal? Would the tax consequence be the same then? I realize that the liability exposure and the entirely different level of due diligence and seller's representations and warranties is very different between a stock and asset deal. Not getting proper legal, tax and accounting advice when selling or buying is, to put it bluntly, a mistake. So before making the mistake, ask yourself, "Are you feeling lucky" as Dirty Harry asked? ******************* You're invited: K&K 2025 HOLIDAY PARTY WILL BE ON DECEMBER 4, 2025 6 PM Old Westbury, NY [presently, I'll let you know if the location changes]. RSVP only if coming with Kathleen Lampert at 516 747 6700 x 319 or KLampert@Kirschenbaumesq.com or Diana Henriquez at 516 747 6700 x 328 or email dhenriquez@kirschenbaumesq.com. 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