Harold Aucoin CPA Inc.

Buying the assets of a business?
When buying a business that is not incorporated you are buying assets. A business is not an entity. Businesses that are operated as a “sole proprietorship”, “partnership”, or “trusts” are not legal entities. Incorporated under legislations in various jurisdictions, companies are entities and people. Banks and other financial institutions like business that are not entities. That’s because there is no impediment to their collateral. It’s a straight line from the financing instrument to the collateral. The buyer likes it too because almost everything that is purchased (usually referred to a basket of assets) can be depreciated for tax purposes. Any amount paid above the “fair market value” of assets is usually accounted for as goodwill. This value can be depreciated too.

When negotiating the sale of their businesses sellers tend to demand a higher value for the assets because it is perceived as more valuable than an incorporated business. Valuators will protest that the value of a business is never about its legal form. People often see it very differently.