Notice regarding changes to the management structure of a. Pursuant to section 253 of the general corporation law of the state of delaware, as amended the dgcl, marshall edwards, inc. While commentators generally agreed that the merger of a disregarded entity into a corporation should not qualify as a statutory merger under section 368a1a, commentators asserted that the merger of a target corporation into a disregarded entity with a corporate owner should be able to qualify as a statutory merger under section 368a1a. Now, as per the rules of such a merger, one company of these two will keep its legal entity intact. The 2003 temporary regulations generally provide that a statutory merger or consolidation is a transaction effected pursuant to the laws of the united states or a state or the district of columbia, in which, as a result of the operation of such laws, all of the assets and liabilities of the target corporation are acquired by the acquiring.
Comments are welcome on the design or content of this material the information presented is only of a general nature, intended. In our last post, i described some general issues relating to taxfree reorganizations. The surviving corporation acquires the assets and liabilities of the merged corporations by operation of state law. As described above, the definition of statutory merger or consolidation allows for the possibility that a merger of a corporation into an entity disregarded as an entity separate from an acquiring corporation could qualify as a statutory merger or consolidation. Merger longform merger completed acquisition completed 8 weeks 50% vote of all shareholders shortform merger acquisition completed 512 weeks tender offer share exchange offer partcash than 50 90% filing of certificate of merger longform merger. Summary of legal aspects of mergers, consolidations, and. Downstream merger and continuity of interest developments 1195. The three principal structural alternatives for a merger or acquisition transaction are the statutory merger, acquisition of assets and acquisition of stock or other form of equity of the target. This treatment differs from a statutory consolidation, where both of the merging entities are terminated and replaced by a successor organization. Section 71a2 does not prevent an s corporation from being treated in its capacity as a shareholder of t as a corporation for purposes of applying sections 338 and 332 sbjpa of 1996. There are several types of mergers with a variety of filing requirements based not only on the number of corporations merging and the type of merger, but also the domicile of. Shortterm merger can be used only when the parent corporation owns at least 90 percent of the outstanding shares.
A reorganizationsstatutory mergers and consolidations. Revenue ruling 58422 merger of parent and its subsidiaries. Shortterm merger can be used only when the parent corporation owns at least 90 percent of the outstanding shares of each class of stock of the subsidiary corporation. An advertising supplement to the business journal avoid tax. Change in corporate name after the merger as of the effective date of the merger, the corporate name of the continuing company will be changed from yamaha musical products corporation to yamaha music. For tax purposes, the merger is treated as an asset sale followed by a liquidation of the target corporation, which produces the same income tax results that a 338h10. For ease of presentation only mergers will be discussed in this article. Vixus asked nomura securities to calculate the merger ratio as an independent calculation agent to ensure the fairness of the merger ratio and consulted and negotiated with vinculum japan, using the calculated merger ratio as a reference. Notice of merger preparations to begin at consolidated. The liquidations of the two subsidiaries in pursuance of the merger agreement are liquidations to which section 332 applies. The term merger or consolidation, when used in this section, shall be understood to mean. A s corporation has income on sale of assets that is passed through to s corporation shareholders a income retains its character capital or ordinary depending on the type of assets sold a generally no additional tax is due on liquidation because tax basis of shares. The corporation that is absorbed in the merger and ceases to exist after the merger share exchange a situation in which one corporation acquires all the shares of another corporation, and both corporations retain their seperate legal existence. This agreement and plan of merger and reorganization, dated as of august 9, 20 the agreement, by and between commonwealth biotechnologies, inc.
The fact that the subsidiaries of the former parent were liquidated at the same time that the parent reincorporated in a different state did not constitute a change in the stockholders or assets of the merged corporation. Although the transaction format has attracted little attention or comment in this country, its advantages suggest that the import of. The connecticut department of revenue services drs expanded on the four part test from grade a market and adopted a six part continuity of business enterprise test. A statutory merger is completed in accordance with the state laws that govern the organization of the parties to the transaction. If a forprofit domestic or foreign corporation is the survivor, use form umc2 when filing. Tax consequences seller generally only one level of tax is paid. Shortform merger law and legal definition shortform merger is a merger that is less expensive and timeconsuming than an ordinary statutory merger, usu.
Under the merger agreement, chwcc, the surviving corporation, assumed the providers liabilities. This is a common form of combination in the mergers and acquisitions process. Statutory merger definition, examples how it works. Close corporations, see model statutory close corporation supplement. A corporate merger is a combining of corporations in which one of two or more corporations survives. A contractual and statutory process by which one corporation the surviving corporation acquires all of the assets and liabilities of another corporation the merged corporation, causing the merged corporation to become defunct. Certificate of ownership and merger filed with the delaware. Surviving entity known place of business or principal address complete this. Change in corporate name after the merger as of the effective date of the merger, the corporate name of the continuing company will be changed from yamaha musical products corporation to yamaha music manufacturing japan corporation.
A merger within the meaning of article 31a of the merger regulation occurs when two or more independent undertakings amalgamate into a new undertaking and cease to exist as separate legal entities. Statutory merger or consolidation type a reorganization one type of acquisitive reorganization is a statutory merger or consolidation, or an. Intended that entire transaction be a taxfree atype merger where 20% boot limitation does not exist. Summary of legal aspects of mergers, consolidations, and transfers of assets the duty that is most pertinent to the approval of mergers and consolidations, however, is the duty of care. Oct 26, 2018 a statutory merger is a business combination in which one of the combining entities continues in existence as a legal entity. The term specified security means any share of stock in an entity organized as, or treated for tax purposes as, a corporation foreign or domestic. Statutory merger law and legal definition a statutory merger is defined as a combination of two or more corporations under the corporation laws of the state, with one of the corporations surviving.
Jul 25, 2011 the three principal structural alternatives for a merger or acquisition transaction are the statutory merger, acquisition of assets and acquisition of stock or other form of equity of the target. Mergingconsolidating nonprofit corporations statutory. Corporation p owns 100 percent of the stock of subsidiary fs, an entity organized under the laws of country x that operates a manufacturing business. Agreement and plan of merger dated as of september. Under temporary regulations adopted in 2003, and later incorporated in the final 2006 regulations, a merger with and into a disregarded entity e. As part of the merger process, the shareholders of the merged corporation receive. New irs reporting rules for stock splits, mergers and. A taxable reverse merger has just one tax on the shareholders, while a taxable forward merger has two taxes one on shareholders and one on corporation. Virtual mergers are functionally, but not legally, equivalent to mergers commonly understood under corporate law.
Although the transaction format has attracted little attention or comment in this country, its advantages suggest that the import of the virtual merger to the united states is inevitable. Some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, but both corporations continue to exist. On december, 1994, the service issued revenue procedure 9476. The term does not include membership interests in an llc that is taxed as a partnership. The surviving corporation acquires the assets and liabilities of the merged corporation s by operation of state law. After a merger, target shareholders will either own stock in the acquiring company or will. If a c corporation is the preferred structure, the same tax rules would apply to any company with a c corporation designation. Arizona corporation commission corporations division rev.
Shortform merger law and legal definition uslegal, inc. Table of contents chapter 3 purposes and powers chapter 4. A statutory merger is a business combination in which one of the combining entities continues in existence as a legal entity. The incomeproducing business of the surviving corporation has not been altered, enlarged, or materially affected by the merger grade a market, inc. Since an s corporation limits the number of shareholders to 100, a close corporation would qualify for this designation. Repealed section 71a2 permitted s corporation to hold 80% 100% subsidiaries. Notice of conclusion of merger agreement between consolidated. That revenue procedure provides that the service will not issue rulings on transactions where two corporations are combined and one of the corporations owns stock in the other, but the first corporation is not an 80 percent distributee of the second corporation under section 337c. When qualified a taxfree reorg can be a great way to help relieve at least the shortterm tax burden of the sellers.
It differs from statutory consolidation, in which all the companies in a combination cease to exist as legal entities and a new corporate entity is created. Statutory merger law and legal definition uslegal, inc. A merger may also occur, as is more often the case, when an undertaking is absorbed by another. In a statutory merger between two companies where company a merges with company b, one of the two companies will continue to survive after the transaction has completed. An s corporation, for united states federal income tax, is a closely held corporation or, in some cases, a limited liability company llc or a partnership that makes a valid election to be taxed under subchapter s of chapter 1 of the internal revenue code. Dec 18, 2012 merger and the merger ratio described above at a meeti ng of its board of directors held on december 18, 2012. Nov 21, 2011 however, a forward triangular merger has the highest tolerance for nonstock consideration of the available tax deferred merger reorganizations. Although a merger can include any number of corporations, it will. For example, lets say that company a and company b enters into a statutory merger. Downstream merger and continuity of interest developments. In this case, on a block by block basis, irs pub 550 states that you must divide the adjusted basis of your old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both. Yamaha corporation, 100% yamaha corporation, 100% 4. However, a forward triangular merger has the highest tolerance for nonstock consideration of the available tax deferred merger reorganizations.
Spinoffs and mergers cost basis allocations and tax. When acquirer or target is spelled with an s special. Statutory merger concept overview, example, and breadown. This type of reorganization offers relatively flexible rules for structuring a transaction and is subject to fewer pitfalls than any other acquisitive reorgani zation. A statutory merger is a type of merger where one of the companies in the merger gets to keep its own legal entity even after the merger. The merger or share exchange has been abandoned in accordance with this section after articles of merger or share exchange have been filed with the secretary of state but before the merger or share exchange has become effective. Statutory merger financial definition of statutory merger. Spinoffs are generally treated like a stock dividend whereby you receive stock in a new company while still holding shares in the old company. A reorganizations this portion of the introduction to the basic principles of united states federal income taxation of corporate acquisitions is part of the pillsbury winthrop shaw pittman llp tax page, a world wide web demonstration project. In statutory merger, there is only one transaction, i. The names, type of entity and jurisdiction of the parties involved in the merger or share exchange are.
The corporate and tax consequences are essentially the same whether the transaction is a merger or consolidation. The parties could agree to merge the target s corporation into a new llc to be formed by the investment group. A reorganization stock issued as part of the purchase price of a business can, if structured correctly, be considered a taxfree reorganization under section 368a1a. A merger may also occur, as is more often the case, when an undertaking is. Acquisition and separation issues in consolidation insolvent. Stock splits, mergers and acquisitions are examples of organizational changes that affect basis. A merger in which one of the merging companies continues to exist as a legal entity, rather than being replaced by the new entity.
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