Customer orders that are confirmed before the closing date but are not shipped require goods and inventory from post-closing stock. Accordingly, the proceeds from such sales would generally go to the buyer and should not be included in the seller`s receivables. This court has long recognized that a shareholder-employee`s personal relationship is not a company asset if the worker does not have an employment contract with the company. These personal assets are totally different from the intangible assets of good business or goodwill. 7 This article provides practical instructions for practitioners who help clients use this effective tax strategy at an early stage in tax planning, explaining the importance of identifying the good-business or goodwill associated with the business, determining its ownership and value, and negotiating its sale and transfer. By reviewing court decisions, this article also helps practitioners avoid potential planning pitfalls. Even in the best circumstances, it is essential to establish facts that can support the finding that the goodor belongs to the shareholders and not to the target company. Unless the transaction is carefully planned, the IRS may view the sale of business or corporate assets by shareholders as a fiction. In Norwalk, 8 another decision of the Finanzgericht of 1998, the court recognised the personal goodwill of a shareholder in the context of the liquidation of a company which operates in accounting. In favor of shareholders, the court said there was no doubt that most, if all of the company`s customers had not followed the accountant who served them when the accountant left the company, “it is reasonable to think that the personal skills, personality and reputation of each accountant are what customers were looking for.” 9 In that finding, the General Court decided that those characteristics did not belong to the company as intangible assets. At the centre of the Court`s decision, the General Court first found that the termination of the employment contracts with the company meant that the shareholders were not required to continue their links with the company. 10 Second, the General Court found that the shareholders were not prevented from competing with the company.
Third, the court found that if the shareholders had left the company, their customers would have followed. Finally, the court did not assign any value to the independent enterprise of the accountants themselves. 11 Where a contractor is able to charge a higher price for that activity, that is a direct consequence of goodwill. When the sale is complete, the new owner of the business will indicate the price paid less the book value of the business as good in all financial documents and accounts. To have personal goodwill, a shareholder must be closely associated with the target company. Otherwise, the goodwill or goodwill acquired by the target company would be largely due to the work of others. Thus, almost always, the target company is kept cramped. In addition, personal goodwill is often found in highly technical, specialized or professional enterprises….