Businesses often need to change their structure to grow or survive tough economic times. This process involves moving pieces around to make the company run more smoothly or to prepare for a future sale. It is a strategic way to keep operations going while adjusting to new market demands.
The tax implications of these moves can be significant and surprising if you are not careful. Proper planning helps you avoid unnecessary tax bills while still achieving your corporate goals. Ignoring the tax side of things can turn a smart business move into a financial burden.
The team at Frost Law understands the complex rules regarding corporate restructuring. We help business owners navigate the IRS code to find the most efficient path forward. Our knowledgeable attorneys work closely with you to design a plan that fits your specific situation.
Call us at (410) 497-5947 or fill out our contact form to schedule a consultation about your business reorganization.
In this type of reorganization, you can acquire the assets of another company. Instead of paying cash, your business usually uses its own voting stock to pay for these assets. This allows the transaction to happen without immediately triggering a large tax event.
To qualify for tax-free treatment, you must meet specific requirements set by the IRS. Frost Law can break down these requirements with you, ensuring that you qualify. Failing to meet these strict criteria can result in the deal being taxed as a regular sale.
This approach is often useful when you want the assets but not necessarily all the liabilities of the target company. It ultimately gives you more control over what exactly you are taking on. We can help ensure your asset transfer aligns with current regulations.
Unlike an asset reorganization, a stock reorganization involves one company acquiring the stock of another company. In short, you are buying control of the target company. This is often a clean way to combine companies without liquidating assets.
The shareholders of the company being bought generally do not pay tax on the transaction at that moment. Their old shares are simply swapped for shares in the purchasing corporation. The tax is deferred until they eventually sell their new stock down the road.
Strict rules regarding the type of consideration used are essential here. Frost Law can review your deal structure to keep it compliant.
Triangular reorganizations, also called triangular mergers, are more complicated ways to merge companies. The methods, described below, each involve a newly-created subsidiary company, often called a "shell". However, both methods achieve the same goal: the acquisition of the target company by the parent company while maintaining a degree of separation and providing distinct transactional and legal benefits over a simple two-party merger.
In a forward triangular merger, the target company merges into a subsidiary of the acquiring parent company. This keeps the liabilities of the target separate from those of the main parent corporation. A reverse triangular merger happens when the subsidiary merges into the target company instead. The target company survives as a subsidiary of the parent company, which preserves its contracts and licenses.
Both methods offer flexibility and liability protection that a direct merger might not provide. However, they come with their own unique set of continuity of interest requirements. Frost Law will discuss the pros and cons of each method and guide you through the multi-step processes to ensure every angle is covered.
Restructuring a business is a major undertaking that requires attention to detail. Every decision you make during this process impacts your tax obligations and future operations. It is important to look at the big picture before signing any agreements.
Having experienced legal counsel by your side can make a difficult transition much more manageable. We analyze your corporate structure to identify opportunities for tax savings and risk reduction. You do not have to figure out the complexities of the tax code alone.
Frost Law is dedicated to helping businesses evolve and succeed in a changing economy. We are ready to listen to your goals and help you build a strategy to reach them. Contact us today at (410) 497-5947 to set up a consultation or fill out our contact form.
