Structured Sale vs. Installment Sale

In our last blog post we discussed the sale of a business as an installment sale.  Our discussion included the installment sale’s time value of money benefits for a business buyer and the high risk of buyer default for the seller.

Today let’s investigate a new form of transaction, the structured sale.  A structured sale allows a business seller to receive payment for their business over time with no risk of buyer default, essentially eliminating the seller’s fears of an installment sale while preserving the benefits.

 The assignment company in turn purchases a high rated annuity from a life insurance company and accepts the obligation of payments to the seller over time.  The seller now receives the money from the assignment company over time (along with the tax benefits) without the risk of buyer default.

The major difference between a structured sale and an installment sale (minus the presence of a third party assignment company) is the out of pocket cash to the buyer.  In an installment sale the seller receives the cash over time and the buyer receives the benefit of paying over time.  In a structured sale, the seller receives the money over time but the buyer must come up with full payment to the third party assignment company at closing.