Financing Internal Buyouts of Private Companies: SCIN Attractive If Valuation Issues Can Be Resolved

Artikel

In planning for succession of ownership, oftentimes the owner of a private business seeks to sell the business to either family members or employees. Arranging outside financing may be difficult or costly, making internal financing attractive. Self-cancelling installment notes (SCINs) provide an opportunity to finance the transfer of ownership at a favorable interest rate and to obtain income and estate tax advantages. However, to pass muster with the Internal Revenue Service, the SCIN must include a risk premium for the cancellation feature. In this paper, we provide a mathematical model for computation of the required risk premium associated with the cancellation provision. The premium may be in the form of either an interest premium or a principal premium and the computations for both are demonstrated in this paper. Appendix A provides an example of the use of the formulas.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Small Business Finance ; ISSN: 1057-2287 ; Volume: 4 ; Year: 1995 ; Issue: 2/3 ; Pages: 129-142 ; Greenwich, CT: JAI Press

Classification and Topics

• Classification: Management ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Internal Buyouts ; MBO ; Private Firms ; Private Companies ; SCIN ; Valuation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Crain, Terry ; Hamill, James
• Event: Veröffentlichung
• (who): JAI Press
• (where): Greenwich, CT
• (when): 1995

Further information

• Handle: http://hdl.handle.net/10419/114687
• Last update: 10.03.2025, 11:43 AM CET