Surprising Goodwill Results For The Unwary

Frequently we have clients who want to move their existing business venture from one company to another. A new company ("Newco") is incorporated with the desired shareholders (possibly including additional shareholders) with the intention of selling a few assets to Newco and having Newco continue to operate the existing business in this new entity. While this may sound great in theory, it is lacking the transfer of the goodwill. The goodwill essentially moves when the existing business commences operations from Newco under the same name. If the existing company does not receive payment or consideration for this transfer, this could pose a potential problem for tax purposes.

Goodwill is an intangible asset, and is often not recorded on the balance sheet of a private company. It is difficult to measure, as goodwill is the premium that a purchaser will pay over fair market value (FMV) for the tangible assets of a business, such as the reputation, customer list and name