When stock consideration is involved in a merger or acquisition, the type A reorganization is a popular way to structure the transaction for income tax planning and compliance purposes.  Relative to the other reorganization choices described in the Internal Revenue Code, the type A provides flexibility that is not found in the other types of reorganizations.  The principal benefit of having a transaction meet the requirements of a type A reorganization is the deferral of income taxes.  If the transaction is properly structured, to the extent that stock of the acquiring company is received, there is a deferral of income taxes (i.e., cash or other “boot” received will be subject to tax).  Just like the other exchange provisions of the Internal Revenue Code, there is a tax basis being carried over to the stock received.

Under section 368(a)(1)(A), the Internal Revenue Code defines a type A reorganization as a “statutory merger or consolidation.”  Besides meeting the definition of a statutory merger or consolidation, there is a continuity of interest requirement.  As provided by the treasury regulations, this requirement will be met if at least 50% of the consideration received is stock (under case law, 40% stock consideration will meet this requirement). Read more »

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Press Release on PR Leap

When selling a business there are many layers of confidentiality and they are all a major concern to business sellers. More often than not, when we hear a seller express concern about confidentiality they are primarily focused on the possible damage competitors might cause should they learn that the business is for sale. This is a real concern about which many articles have been written; however, another layer of confidentiality which has received less attention is that which relates to employees.

Sound working relations with employees are an important component of every business. While confidentiality can be a far greater perceived problem with regard to employees than an actual problem, with proper planning it is possible to minimize the risk of untimely disclosures. Read more »