Chapters 7 and 13

Chapters 7 and 13 - Chapter 7 Corporate Reorganizations 1...

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1 Chapter 7 Corporate Reorganizations
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2 Types of Reorganizations Section 368 authorizes seven types of reorganizations to accommodate the major forms of business acquisitions, divestitures, and restructurings. The different types of reorganizations are generally referred to by the subparagraph letter of Sec. 368 that defines them. An acquisitive reorganization is a transaction where the acquiring corporation obtains part or all of the assets of the target corporation. Types A, B, C, D, and G reorganizations can be classified as acquisitive transactions. A divisive reorganization is a transaction in which part of a transferor corporation's assets are transferred to a second, newly-created corporation that is controlled by either the transferor or its shareholders. Type D or G reorganizations can be either acquisitive or divisive. A Type E reorganization is a recapitalization of an existing corporation. A Type F reorganization changes the identity, legal form, or state of incorporation.
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3 Acquisitive Reorganizations The various types of acquisitive reorganizations are discussed below. Topic Review C7-5 provides a summary of their requirements. A. Type A Reorganization. There are three types of A reorganizations: mergers or consolidations, triangular mergers, and reverse triangular mergers. 1. Merger or Consolidation. A Type A reorganization is a merger or a consolidation that satisfies the corporation laws of the United States, a state, or the District of Columbia. Figure C7-1 illustrates a merger. A consolidation is illustrated in Figure C7-2. The tax consequences of a merger transaction are illustrated in Example C7-17. A tax-free reorganization also allows the transfer of the assets and liabilities acquired from the acquiring corporation to a controlled subsidiary corporation. No gain is recognized by the parent or the controlled subsidiary on the transfer. The bases of the individual assets carryover from the parent to the subsidiary.
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4 Advantages and Disadvantages of a Merger Transaction A merger allows greater flexibility than other types of reorganizations because there is no restriction that the consideration be solely voting stock as in the case of some other reorganization forms. There is no requirement that "substantially all" of the assets of the target corporation be acquired. Disadvantages include the need to comply with state corporation laws which usually include approval of the plan by shareholders of both corporations. All liabilities of the target corporation must be assumed including unknown and contingent liabilities. Triangular Mergers. Triangular mergers are similar to the conventional Type A merger forms except the parent uses a controlled subsidiary corporation to act as the acquiring corporation. The target corporation is merged into the subsidiary corporation. Triangular mergers must satisfy state law. In addition, the stock used to acquire the target corporation is limited to the parent corporation's stock. The subsidiary must acquire substantially all of
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This note was uploaded on 03/12/2010 for the course ACCT 2300 taught by Professor Thomasdownen during the Spring '06 term at Texas Tech.

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Chapters 7 and 13 - Chapter 7 Corporate Reorganizations 1...

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