B Reorganization Agreement

In section 368 of the Internal Income Code, three types of business acquisition structures are considered tax-exempt restructurings (or benefiting from a tax advantage): in a “B” reorganization, the purchaser exchanges his eligible common and/or qualified shares (no boat, except small amounts paid for fractions) for control of the objective, defined as the ownership of 80% of the “value” of the objective`s share. The objective survives as a subsidiary of the purchaser and protects the purchaser from the debts of the target. The buyer is not required to acquire all 80% of the target stock at a time, but must own at least 80% at the end of the acquisition. This allows the buyer to gradually acquire the target`s shares in the context of a so-called “creeping” acquisition. Since this structure does not require the acquisition of 100% of the objective`s shares, minority shareholders may retain a share of the objective. The “B” reorganization is similar to the reverse triangular merger, except that it eliminates minority shareholders and requires the purchaser to acquire “essentially all” of the target`s assets. Exempt-minded transactions are considered “re-organizations” and are similar to taxable transactions, except that, in the event of restructuring, the purchaser uses his portfolio as a substantial part of the consideration paid to the seller instead of cash or debt. Four conditions must be met to qualify a transaction for tax-free treatment pursuant to Section 368 of the Internal Income Code (IRC): as in the case of the acquisition of taxable assets, the purchaser may selectively choose which of the objective`s assets will eventually be accepted by the purchaser. The refusal of certain debts gives the purchaser even greater protection than the isolation of these debts within a subsidiary. However, the purchaser is highly exposed to all accepted liabilities, unless a subsidiary is used to protect this exposure as in other structures. In addition, the “C” reorganization, such as the .B the acquisition of taxable assets, can be mechanically complex, costly and time-consuming. As a result, “C” reorganizations are rare.

Although restructurings are generally not taxable at the corporate level, they are not completely tax-exempt for selling shareholders. A reorganization is immediately taxable to the target`s shareholders, as long as they receive a non-qualifying counterparty or “boat.” In addition, the taxation of acquisition shares received in return by the shareholders of den coupons is postponed and is not completely avoided. Suppose Alpha acquires Le Tango in a tax-free reorganization for $60 $US in cash and $40 in stock. The overall base of Tango shareholders in their stock stock is $20. The profit made by Tango shareholders is therefore $60 – $40 to $20 – $80. Your recognized profit is the lowest of the gain made and the amount of the boot received, or $60.