My Guests
This week, we explore two separate mechanisms that may allow acquisition entrepreneurs and their investors to receive their exit proceeds largely free of tax. Relative to how powerful these programs can be, both are not fully understood within the Search Fund community, especially among new and prospective searchers.
In the first half of the episode, we focus on the USA, and are joined by Kevin Christmas and Brandon Bloom of Holland & Knight to explore the QSBS program offered by the United States federal government, which can shield up to $10M (or more) of exit proceeds from federal tax.
In the second half of the episode, we turn our focus to Canada, and are joined by Kali Baraniski, a Senior Manager within Ernst & Young’s Private Tax division, to explore the CCPC program offered by the Canadian federal government that can shield up to $1.1M of capital gains from federal tax.
Naturally, both programs are subject to various requirements, only some of which we touch on during today’s episode. Given that this episode is not meant to constitute tax advice, interested listeners should consult with their lawyers or accountants prior to pursuing either of these programs.
Listen in Your Browser
How to Get Your Exit Proceeds (Mostly) Tax Free – In The Trenches
Listen on Other Platforms:
Apple | Spotify | Breaker | Pocket Casts | RadioPublic
Episode Summary with Timestamps
USA
0:04:29 What is the QSBS program and why should searchers and CEOs care about it?
0:07:55 What was the federal government’s intent behind creating the QSBS program?
0:09:16 What are the most important criteria for a company or investment to qualify for QSBS treatment?
0:12:28 Can a search fund structured as an LLC still benefit from QSBS treatment?
0:14:57 How does the applicability of QSBS treatment differ between investment theses focused on regular dividends vs. substantial exit proceeds?
0:22:02 From an investor’s perspective, what are the mechanics and any potential “gotchas” with QSBS structures?
0:28:51 What industries or types of businesses are exempt from QSBS treatment?
0:34:18 If a searcher earns carry, where should that carry be held to benefit from the QSBS program?
Canada
0:47:37 What is the lifetime capital gains exemption and CCPC status, and why should CEOs and investors care?
0:54:18 How does one qualify as a CCPC?
1:00:25 Where should carry be earned (personally or in a corporation) to benefit from the lifetime capital gains exemption?
1:03:58 Are there any reasons why an investor may not want a portfolio company to have CCPC status?
1:06:20 What common deal structuring mechanisms might complicate or preclude CCPC treatment?
1:07:57 If a Canadian entrepreneur recently acquired a company, is it too late for them to pursue CCPC status and the associated benefits?
Download a Written Transcript of Our Conversations
Access a text-based version of our discussion to highlight, copy or take notes by clicking on either of the buttons below
Download the Holland & Knight QSBS Whitepaper
Thanks to our Sponsors
This episode is brought to you by Boulay, the industry standard for Quality of Earnings reports, tax, and small business audit services. Over the past 20 years, Boulay has worked directly with hundreds of search funds from capital raise to exit, currently assisting over 150 funds in the search phase, another 125 in the operating phase. They work with Searchers across the entirety of the ETA journey: They perform financial due diligence and create QofE reports that your investors can rely on, they provide a full suite of tax services both for your search fund and for the acquired company, they perform the annual audits required by most debt and equity investors, and also perform outsourced accounting services, acting as a fractional bookkeeper and controller for those companies whose needs might not necessitate full-time in-house resources.
This episode is brought to you by Oberle Risk Strategies, the leading insurance brokerage and insurance diligence provider for the search fund community. The company is led by August Felker (himself a 2-time successful searcher), and has been trusted by search investors, lenders, searchers and CEOs for over a decade now. Their due diligence offering (which is 100% free of charge) will assess the pros and cons of your target company’s insurance program, including any potential coverage gaps, the pro-forma insurance pricing, and the program structure changes needed for closing. At or shortly after closing, they then execute on all of those findings on your behalf. Oberle has serviced over 900 customers across a decade of operation, including countless searchers and CEOs within the ETA community.
Discover more from
Subscribe to get the latest posts sent to your email.