What Forms Do I Need to Sell My Franchise?

Q: Is a book of business a capital asset?

Yes, a book of business is generally considered a capital asset. It represents the value of customer relationships and contracts that can generate future income. When sold, any gain from the sale may be subject to capital gains tax. Proper valuation and documentation are essential to ensure accurate tax treatment.

Full question:

If I am selling my book of business and business goodwill to someone who lives in Colorado what specific legal form will I need? Does it matter that it is two different states? Should I hire a lawyer to do this for me?

Category: Corporations
Date: 04/07/2025
State: Maryland

Answer:

In a contract, the parties may specify the law that will apply in the event of a dispute. Venue is the legally proper or most convenient place where a particular case should be filed or handled. Every state has rules determining the proper venue for different types of lawsuits. Normally, the venue in a criminal case is the judicial district or county where the crime was committed. The state, county or district in which a lawsuit is filed or a hearing or trial in that action is conducted is called the forum. For various reasons either party to a lawsuit or prosecution may move (ask) for a change of venue, which is up to the discretion of a judge in the court where the case or prosecution was originally filed. Reasons for such a request may include a clause in a contract stating that any action must be brought in a certain other venue, or pretrial publicity may be claimed to have tainted the potential jurors in that venue from rendering an impartial judgment.

It is often advantageous to have the assistance of an attorney in preparing or reviewing important legal documents when large dollar amounts are involved or the potential for future litigation is significant. I also suggest reviewing the franchise agreement with the franchisor regarding your rights and obligations in transferring the franchise, as well as those of the franchisor.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

How is goodwill taxed when selling a business?

Goodwill is typically considered a capital asset. When you sell your business, any gain from the sale of goodwill may be subject to capital gains tax. The tax rate can vary based on how long you've held the asset and your overall income. It's important to consult with a tax professional to understand the specific tax implications for your situation, especially if the sale involves parties in different states.

What happens to existing goodwill when you sell a business?

When you sell a business, the existing goodwill is usually transferred to the buyer as part of the sale. This includes the reputation, customer relationships, and brand value associated with the business. The buyer may continue to leverage this goodwill to attract and retain customers. However, the specifics can depend on the terms outlined in the sale agreement.

What is the tax treatment of the sale of a book of business?

The sale of a book of business is generally treated as the sale of a capital asset, which may trigger capital gains tax on any profit made from the sale. The exact tax treatment can depend on various factors, including how the business is structured and the duration of ownership. Consulting a tax advisor is recommended to navigate the complexities of this transaction.

What happens to goodwill when you close a business?

When you close a business, the goodwill associated with it typically dissipates. Goodwill is tied to ongoing operations and customer relationships, which cease when the business closes. If the business is sold before closure, the goodwill may be transferred to the buyer, who can continue to leverage it. Otherwise, it generally has no value after closure.