A reverse triangular merger may qualify as a tax-free reorganization when 80% of the seller’s stock is acquired with the voting stock of the buyer; the non-stock consideration may not exceed 20% of the total.
What is an acquisitive reorganization?
Acquisitive reorganizations, as the name implies, involve a restructuring where one corporation acquires another corporation. This can happen via a stock acquisition. With a stock sale, the buyer is assuming ownership of both assets and liabilities – including potential liabilities from past actions of the business.
What’s the difference between merger and consolidation?
Differences Between Mergers and Consolidation A merger is a statutory and contractual combination of two or more entities or companies into one while consolidation is the contractual and statutory process where two or more entities, usually companies join hands to form a completely new, more solid, and stronger entity.
When to use a tax-free reorganization or merger?
A triangular merger is a reorganization in which a subsidiary owned by the acquiring corporation merges with the target, with the target going out of business. Since it is a merger and not an acquisition, it eliminates the minority stockholders, who are legally required to accept the buyer’s purchase price.
Why is a tax-free reorganization unattractive to the seller?
A tax-free reorganization is unattractive to the seller because he or she does not desire to invest in the stock of the acquiring corporation (i.e., the seller wants cash, or no market exists for the stock of the acquiring corporation); or The buyer is not a corporation, so the tax-free reorganization option is not available.
What happens to Target Corporation in a type a reorganization?
In a Type A reorganization, the target corporation dissolves after the merging. All of the target’s balance sheet is absorbed by the acquiring or parent company (IRC § 368 (a) (1) (A)). Type B reorganization: A form of corporate restructuring where the acquiree exchanges its stock for voting stock in the acquirer’s corporation.
Can a divisive reorganization result in a tax free reorganization?
As opposed to an acquisitive reorganization, a divisive reorganization involves divestiture of a portion of a groups holdings, or division of that corporation into smaller subsidiaries. This results in a tax-free reorganization, which can be described as the reverse of an acquisition.
