See Deal Structure for general discussion.
In BVX, Personal Goodwill payments are a purchase price allocation, and hence are part of the Enterprise Value, not in addition to it.
Amount A specific amount or zero for Personal Goodwill allocation
Interest % interest rate on the Personal Goodwill payments
Years # of years for Personal Goodwill payments
0 (zero) for a 5-year balloon payment, or
C if Personal Goodwill payments are part of cash at closing
Payments Fixed principal, variable interest
Other Personal Goodwill is amortized over 15 years and the amortization is deducted from taxes, regardless of when personal goodwill payments are made.
Personal Goodwill is goodwill attributable to the shareholders rather than to the business. Payments for goodwill that is attributed to the business go to the corporation in an Asset purchase. These payments get double-taxed if the corporate seller of the assets is a C Corporation, thus significantly reducing the after tax proceeds to the shareholder. In contrast, payments for goodwill that is attributed to the shareholder go directly to the shareholder, even in Asset purchase from a C Corporation. These payments get taxed directly at the shareholder level, and they, being for goodwill, get a favorable capital gains tax treatment; thus significantly increasing the after tax proceeds to the shareholder in comparison to goodwill allocated to the business. Due to these tax benefits, shareholders prefer allocation to personal goodwill over business goodwill. However, there are guidelines for Personal Goodwill allocation. Professional advice is highly recommended for quantifying Personal Goodwill.
- Enter the $ amount allocated to Personal Goodwill payments.
- Enter the % Interest on the Personal Goodwill payments.
- Enter the repayment period in # of Years for the Personal Goodwill amount. For example, if 5 is entered as the number of years, BVX will pay down the Personal Goodwill amount uniformly over 5 years. Do not enter fractional years.
Enter 0 (zero) if the Personal Goodwill payment is a five-year balloon payment (BVX does not allow a Personal Goodwill balloon payment less than 5 years).
Enter C (for Cash) if the Personal Goodwill amount is pre-paid as part of the up-front cash payment.
BVX pays accrued interest and amortizes the Personal Goodwill amount in uniform annual principal payments over the # of years specified beginning with the first year post-acquisition. (Example: Assume Personal Goodwill = 1000, interest = 10% and Years = 5. Year-1 debt service will be 300, consisting of 100 for interest and 200 for principal. At the end of Year-1 outstanding debt will be 800. Year-2 debt service will be 280, consisting of 80 for interest and 200 for principal.)
Note: BVX amortizes the Personal Goodwill amount over 15 years, regardless of how Personal Goodwill payments are made. Personal Goodwill amortization reduces taxable income in both the Asset purchase and the Stock purchase.