Business Sale
Hello. I was basically handed this pet product company that a friend/associate designed/invented the product. I had started my own company (EIN) and had to rebrand with new logo etc, but we did have a contract that if the company grew exponentially she would receive up to $50k purchase price for the rights to the product, a little bit of inventory and the guaranteed sales that came with the product, and then with some residuals in royalties. Unfortunately it did not happen, but it has remained a great side gig and I have paid her about $8k over the last 6 years which I have classified as Royalties on the books. I am now selling the company, I reduced the price and it still has great potential for this buyer. The inventor/previous owner is still a good friend so I want her to receive 60% of the proceeds of the sale. I have made a some money on it the last 6 years, so she needs to be compensated and I plan to do so. My question is, what is the best way to record this on the books. The sale price is $25k. So I would receive $10k, former owner would receive $15k. But is no longer really considered Capital Costs is it? So how do we do this so I am not paying Cap Gains on $25k? Do I have the buyer cut two checks, one to my current company/me and one for $15k to the previous owner separately? Or is there a way to show on my books the $25k income from the sale offset by $15k? If I put it to Royalties as I have been will I still have to pay the Cap Gains on $25k? Thanks for you help!
