acquisitions - ACCT618-1001B-01 Phase 4 Discussion Board...

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ACCT618-1001B-01 Phase 4 Discussion Board BLC is entertaining the idea of acquiring Klump Lighting Company by paying $750,000 in cash plus $900,000 in common stock to acquire all of Klump Lighting’s assets. Management at BLC would like to know more information on mergers before any commitments are made. Management has asked me to research the three main types of acquisitions/reorganizations. These three main types include Type A which is merger or consolidation, Type B which is stock for stock, and Type C which is assets for stock. In addition to a brief discussion on each of these types of reorganization I will recommend which type would be best for both companies. IRS Stipulations As BLC and Klump are determining the proper structure of the acquisition they must take into consideration the taxability of the transaction to the seller (Klump Lighting). In order for Klump Lighting to avoid the recognition of a taxable gain they must meet the stipulations set forth by the Internal Revenue Service (IRS). These stipulations require that the transaction be for a genuine business purpose rather than for tax avoidance. There must also be a continuity of business enterprise which simply means that BLC will have to continue Klump Lighting’s historic business or utilize the acquired assets in the business. There must also be a continuity of interest which means that the ownership interests of the Klump Lighting’s stockholders must continue into BLC. Klump Lighting can achieve this by having BLC pay at least 50% of the purchase price in BLC’s stock (Tax-Free Acquisitions , n.d.). Type A
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The three stipulations discussed above have been incorporated by the IRS into three types of reorganizations which are most commonly known as a Type A, B, or C. The name of each of these reorganizations comes from the paragraph letter in the Internal Revenue Code in which the
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This note was uploaded on 06/01/2010 for the course ACCT 618 taught by Professor Franklimmitchum during the Spring '10 term at Colorado Technical University.

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acquisitions - ACCT618-1001B-01 Phase 4 Discussion Board...

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