When selling a startup, how is the sale price taxed?

Question

I'm interested in understanding how the sale price of a company passes through an LLC and ultimately finds its way to the founders.
Let's say i have a startup which is filed as an LLC, taxed as an s-corp, and there are two founders with 50% shares each. assuming its just the two founders that receive the sale price of 500,000.
How does the taxation work? do the founders each have 250,000 taxed as regular income?

gaefan · Accepted Answer

First, are you certain that you are selling the startup itself as opposed to selling the assets of the startup?  Often for smaller startups, the assets are sold rather than the startup.  In this case you still own the startup, but the startup doesn't have much left.
This makes a big difference:

Sales of assets (e.g., IP or software) are often taxed as ordinary income.
Sales of startups (the LLC itself) are taxed as capital gains and likely long-term capital gains.

There are many complexities so you'll need to do some research or consult a professional.

When selling a startup, how is the sale price taxed?

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