District of Columbia Merger Agreement for Type A Reorganization
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How to fill out Merger Agreement For Type A Reorganization?
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FAQ
Hear this out loud PauseA type A Reorganization is a tax-free merger or consolidation. Generally, in a merger, one corporation (the acquiring corporation) acquires the assets and assumes the liabilities of another corporation (the target corporation) in exchange for its stock.
IRC Section 368(a)(1) Subsections A through C In a merger-type of reorganization, a subsidiary corporation is absorbed into a parent company, following any applicable state law or merger statute. A consolidation, on the other hand, involves a combination of two equally grounded companies.
Hear this out loud PauseA Type A reorganization must fulfill the continuity of interests requirement. That is, the shareholders in the acquired company must receive enough stock in the acquiring firm that they have a continuing financial interest in the buyer.
Hear this out loud PauseA merger is the union of two or more corporations, with one of the corporations retaining its corporate existence and absorbing the others. The other corporations cease to exist by operation of law. A consolidation occurs when a new corporation is created to take the place of two or more corporations.
Hear this out loud PauseAlso, to qualify as a section 368(a) reorganization, a transaction generally must satisfy three nonstatutory requirements: business purpose, continuity of interest, and continuity of business enterprise.
The sole requirement here is that the acquiring/parent company own above and beyond majority ownership of the acquiree after the transaction. This requires that the target corporation exchange around 75-85% ownership to the acquiring company (IRC § 368(a)(1)(B)).
These requirements are that the continuity of business enterprise requirement must be met, the reorganization must meet the continuity of interest requirement, the judicial doctrine of having a sound business purpose must be met, and the step transaction doctrine should not be applicable.
Section 368(a)(1)(D) provides that the term ?reorganization? includes a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any ...