From a tax perspective, there’s some big differences. This is not financial or tax advice, so talk to an accountant or tax professional about this if you need to get serious about it (too late for this company, but not the next)
The sale of your company was an asset sale, which means the amount you made from the sale will be taxed as income. That’s fine for the size of the deal and low complexity of the product. As you said, you sold some code, IP, and design.
If the transaction was much larger, say $1m+, you’d be pushed to the top federal and state income brackets and be paying a lot in taxes. Top federal income tax rate is 37%.
Most larger companies are C-corps, which is a boring way of saying they issue stock, have shareholders, and a board of directors. It’s a more complicated structure, but it’s absolutely necessary if you want to bring in outside investors and/or know you’re going to build a high-growth company.
Under this arrangement, the thing that’s sold is stock. Just like you buy and sell MSFT or AAPL. Selling a C-corp means you sell over 50% of the company stock to a buyer and they control the company. No IP, design, code, or assets are sold—what’s sold is control to all of those things.
Back to taxes: the seller pays a capital gain tax rate, which depending on more factors worth enumerating here, come out to a little above 15%. There’s also this thing called qualified small business stock, which discounts that 15% rate on the first $10m of gains if you’ve held that stock for more than 5 years and sold it (it’s more complicated then that).
The shorter answer to your question, “what more is in a company?” — equity!
That might be true in the US, but in other jurisdictions a sole-trader or partnership can also attract lower tax rates on the disposal of assets or the whole business including 'good will'. In the UK this could probably get entrepreneurs relief as well, taking it down to 10%. Speak to a tax accountant of course.
The sale of your company was an asset sale, which means the amount you made from the sale will be taxed as income. That’s fine for the size of the deal and low complexity of the product. As you said, you sold some code, IP, and design.
If the transaction was much larger, say $1m+, you’d be pushed to the top federal and state income brackets and be paying a lot in taxes. Top federal income tax rate is 37%.
Most larger companies are C-corps, which is a boring way of saying they issue stock, have shareholders, and a board of directors. It’s a more complicated structure, but it’s absolutely necessary if you want to bring in outside investors and/or know you’re going to build a high-growth company.
Under this arrangement, the thing that’s sold is stock. Just like you buy and sell MSFT or AAPL. Selling a C-corp means you sell over 50% of the company stock to a buyer and they control the company. No IP, design, code, or assets are sold—what’s sold is control to all of those things.
Back to taxes: the seller pays a capital gain tax rate, which depending on more factors worth enumerating here, come out to a little above 15%. There’s also this thing called qualified small business stock, which discounts that 15% rate on the first $10m of gains if you’ve held that stock for more than 5 years and sold it (it’s more complicated then that).
The shorter answer to your question, “what more is in a company?” — equity!