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Goodwill Not Necessarily a Company Asset

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

The way in which a business is structured has many ramifications and can be especially important on sale, as a recent case shows.

It involved a bakery company specialising in the sale of Turkish style products. When the business was sold, the sale agreement showed the owner/director of the company as being the owner of the goodwill of the business. The goodwill was transferred to the buyer for nearly £500,000. Only a year after the sale, the buying company went into liquidation and the liquidators sought to recover the payment for the goodwill on the ground that it had, in reality, belonged to the company and therefore the company sale as structured was a transaction at an undervalue and/or the payment to the director amounted to a misappropriation of the company’s assets. The liquidators lost, the court deciding that (despite clear guidance to the contrary by HM Revenue and Customs) the goodwill of a business can be separately owned from the other assets of the business.

For advice on the appropriate legal structure for your business, contact Clare Towers.

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