BVX Knowledge Base
BVX Knowledge Base
M&A University

Buyer's Corporation Type

See Taxation for general discussion.


Corporate type input is that for the buyer not for the seller. BVX provides a choice of C Corporation structure (a double-tax entity) and S Corporation structure (a single-tax or pass through entity). Other types of corporate structures generally fall into one of these two types for tax calculation purposes.


Two types of taxes are paid in the C Corp. structure. Both are paid at the corporate level. First, State and/or Local taxes are paid on the corporate taxable income. Then Federal taxes are paid on the corporate income after deducting the State and/or Local taxes.


Two types of taxes are paid in the S Corp. structure. One is paid at the corporate level and the other is paid at the shareholder level. First State and/or Local taxes are paid on the business income at the corporate level (There is no federal tax on S Corp income; however, corporate income tax exists for S Corp. in many states and/or local municipalities.) Then, BVX distributes dividends to cover S Shareholder's tax liability on the income of S Corp. Such distribution to cover taxes is calculated on the remaining corporate taxable income after deducting State and/or Local taxes. (Note: If distribution is not made to cover shareholder tax liability on S Corp. income, the shareholder will have to cover such tax liability with new funds.) 


BVX permits an option for Tax-affecting vs. Not-tax-affecting S Corp. income in Internal Settings.  Default setting is not-tax-affecting.  With traditional valuation methods that rely on the capitalization formula not-tax-affecting approach results into a significantly higher value for an S Corp. over an otherwise identical C Corp. In BVX, the impact of not-tax-affecting depends on the degree of financial leverage.  As financial leverage increases, the tax deductibility of the interest expense reduces the negative impact of C Corp. double taxation. Hence, the value of C Corp. is not significantly lower than an otherwise identical S Corp. 


BVX also permits an option to pay or deduct or not-deduct Corporate Liquidation Taxes in an asset sale of the business. Default setting is to deduct corporate liquidation taxes. This can be changed in Internal Settings