Personal Goodwill: An Asset Belonging to the Individual
Goodwill is a particularly ambiguous measure. It is a measure that is usually tired directly to an individual, typically the owner of a small business, who brings relationships and ties of some sort that may not otherwise exist with the business without the individual. In order to claim goodwill a business must be able to:
- Prove goodwill exists
- Show that the goodwill is owned by the individual
- The relationships exist between the individual and suppliers or customers
- There are not any non-compete agreements in place with the firm acquired
- There is a consulting agreement in place existing long enough for the goodwill to transfer from the seller to the buyer.
- A purchase agreement that is separate from the sell of the company
If the seller is able to negotiate a structure that will keep include a valuable on the goodwill then there are a number of benefits that help the seller:
- Goodwill is something that is tied directly to the individual and not the corporation. This means that when it is sold it goes directly to the individual and is not double taxed at the corporate level and then individual level.
- Goodwill, if tied to the individual and not the corporation, is not subject to the creditors.
If the individual has personal goodwill and is able to show that he has it. Then he or she sells that asset personally on a level that is separate from that of the sell of the corporation or LLC. In order to value goodwill you need to determine how much money is acquired due to the relationships of the goodwill.
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