1. Monetizing a C-Corporation: The Value Trap Lloyd Grissinger Managing Director CBIZ MHM, LLC

2. Happy Days are Here!!! 2 Stock Sale Proceeds $ 15,000,000 Basis 5,000,000 Gain 10,000,000 Individual Fed & TN Tax Rate20% Fed and State Tax 2,000,000 After Tax Proceeds $ 13,000,000

3. Forms of Transactions Non-Tax Drivers Asset SaleOwnership Sale 1. Limit Successor Liability1. Usually Avoids Contract Assignment Consents 2. Selected Business Assets2. Regulatory Issues

4. Ownership Sale -- StockAsset Sale Seller Generally, capital gain recognized on sale of stock. Avoids double taxation if a C-Corp. Buyer Inherits preexisting liabilities. Tax basis in assets and the holding period do not change except for §338. Seller Double taxation results where the assets sold are held by a C- Corporation Buyer Basis in assets equal to the amount paid for the assets. Holding period starts over. Do not inherit any preexisting liabilities. Gain recognized and character depends on the type of the asset sold (inventory or FEE – ordinary, goodwill – capital gain).

5. Problem 5 Asset Sale Proceeds $ 15,000,000 Basis 5,000,000 Gain 10,000,000 Corporate Fed & TN Tax Rate38.3% Fed and State Tax 3,829,000 Cash available for distribution 11,171,000 Individual Fed & TN Tax Rate25.2% Fed and State Tax on Dividend 2,815,092 After Tax Proceeds $ 8,355,908 Proceeds Lost to Tax31% $ 4,644,092 Stock Sale Proceeds $ 15,000,000 Basis 5,000,000 Gain 10,000,000 Individual Fed & TN Tax Rate20% Fed and State Tax 2,000,000 After Tax Proceeds $ 13,000,000

6. Sale of Personal Goodwill C-Corporation or S-Corporation with C-Corp. E&P Industries: Sales/Distribution/Service Competition Has Low Barrier to Entry NO preexisting Covenant Not to Compete Owners created Personal Goodwill –Reputation, Expertise, Relationships with Customers, etc.. TN Resident 6

7. Solution 7 Personal Goodwill Proceeds $ 9,000,000 Basis - Gain 9,000,000 Individual Fed & TN Tax Rate20% Fed and State Tax 1,800,000 After Tax Proceeds $ 7,200,000 Asset Sale Proceeds $ 6,000,000 Basis 5,000,000 Gain 1,000,000 Corporate Fed & TN Tax Rate38.3% Fed and State Tax 382,900 Cash available for distribution 5,617,100 Individual Fed & TN Tax Rate25.2% Fed and State Tax on Dividend 1,415,509 After Tax Proceeds $ 4,201,591 Net Proceeds from Bifurcated Sale $ 11,401,591 Net Proceeds from Asset Sale 8,355,908 Tax Savings $ 3,045,683

8. Manufacturing Example 8 Asset Sale Proceeds $ 15,000,000 Basis 5,000,000 Gain 10,000,000 Corporate Fed & TN Tax Rate38.3% Fed and State Tax 3,829,000 Cash available for distribution 11,171,000 Individual Fed & TN Tax Rate25.2% Fed and State Tax on Dividend 2,815,092 After Tax Proceeds $ 8,355,908 Tax Savings $ 1,015,228 Bifurcated Asset Sale $ 12,000,000 5,000,000 7,000,000 38.3% 2,680,300 9,319,700 25.2% 2,348,564 $ 6,971,136 Personal Goodwill Proceeds $ 3,000,000 Basis - Gain 3,000,000 Individual Fed & TN Tax Rate20% Fed and State Tax 600,000 After Tax Proceeds $ 2,400,000 After Tax Proceeds $ 9,371,136

9. Bonus 9 Personal Goodwill Payment $ 1,000,000 Fed Rate39.6%20.0% Tax 396,000 200,000 Tax Savings $ 196,000

10. Lloyd Grissinger Managing Director (901) 685-5575 lgrissinger@cbiz.com 10