Corporate acquisition talks may not get far if buyer and seller disagree over transaction structure, which can have significant after-tax effects. But the parties may have overlooked an item that, due to its potential tax treatment, could be the key to facilitating the acquisition. That item is the selling shareholder's "personal goodwill."

Personal goodwill exists when the shareholder's reputation, expertise, or contacts gives the corporation its intrinsic value. It is most likely to be found in closely held businesses, especially those that are technical, specialized, orprofessional in nature or have few customers and suppliers. If personal goodwill is treated as property that can be sold ancillary to the sale of the corporation's assets or stock, it can produce a more favorable after-tax result for both buyer and seller. An effective transfer ofpersonal goodwill is also necessary to give buyer the benefit of its bargain

This author adopts the view that personal goodwill, like business goodwill, should be deemed marketable property. Under this view, buyers receive a step-up in basis in the goodwill and can amortize it for tax purposes. C corporation sellers can sell the goodwill ancillary to the sale of their corporations and avoid double taxation. All sellers may receive favorable capital gains treatment on the sale.

Document Type


Publication Date

Winter 2005

Publication Information

30 Delaware Journal of Corporate Law 1-44 (2005)