Table of Contents
- 1 What are Reorganizations?
- 2 What Are B Reorganizations?
- 3 What Are The Control Requirements For B Reorganizations?
- 4 What Type of Consideration May Be Used In B Reorganizations?
- 5 Can B Reorganizations Occur Over a Series of Transactions?
- 6 Will There Still Be Minority Shareholders?
- 7 Key Takeaways
- 8 Conclusion
What are Reorganizations?
A reorganization allows a company to restructure its operations without triggering significant tax consequences. A reorganization is generally considered a change in the form of a corporation rather than a mere change in the place of doing business. For example, suppose a company moves its headquarters from New York City to Los Angeles. In that case, it will likely qualify as a reorganization because the move changes the form of the corporation. However, if a company merely changes its name, it may not qualify as a reorganization. You should consult your accountant or other professional advisors about the potential tax implications if considering a reorganization or B reorganizations.
What Are B Reorganizations?
In B reorganizations, the acquiring corporation acquires all of the target corporation’s shares. The acquiring corporation doesn’t need to pay any money to purchase the target corporation’s shares. Instead, the acquiring corporation pays the target corporation’s shareholders for the acquired shares. This means that the acquiring corporation owns the target corporation’ shares directly.
The acquiring corporation then calculates the basis of the target corporation’s share using the same method as if it had bought the shares. For example, if the acquiring corporation buys 100 shares at $10 per share, the acquiring corporation will calculate the basis of the target shares as if the acquiring corporation owned those shares. If the acquiring corporation paid $100 for the shares, the basis would be $100.
B reorganizations are complex transactions that require careful planning and execution. They must be done correctly to avoid legal issues.
What Are The Control Requirements For B Reorganizations?
In B Reorganizations the control requirement is satisfied if the acquiring corporation possesses at least 80% of the value in all classes of voting stock plus at least 80% of all other classes of stock. If the acquiring corporation acquires 80% of the value from Classes A and B, it will satisfy the control requirement. However, receiving less than 80% of the value may still qualify for a tax benefit. For example, consider five classes of stock – Class A and Class B, with voting rights, Class C, Class D, and Class E, none of which have voting rights.
What Type of Consideration May Be Used In B Reorganizations?
A B reorganization is a type of corporate restructuring that allows companies to move assets out of an insolvent subsidiary and back into the parent company. This corporate restructuring requires a particular form of corporate reorganization called a “B” reorganization. Only certain types of corporations are eligible for a B reorganization, including those whose primary activity consists of owning or operating businesses in the same line of business as the corporation seeking the reorganization. For example, if a company owns a hotel chain, it could seek a B reorganization to transfer all of its hotels to another company. However, if a company owns real estate, it could not pursue a B reorganization unless it also owned a hotel chain.
Can B Reorganizations Occur Over a Series of Transactions?
A reorganization can occur when a company acquires another company. A reorganization occurs when the acquiring company’s shareholders receive all or substantially all of the target company’s shares. Reorganizations can be accomplished via multiple steps. For example, an acquisition could involve the purchase of all outstanding shares of the target company at a price below its fair value. Then, the shareholders of the acquiring corporation could vote to approve the merger. Finally, the acquiring corporation could issue additional shares to the target company’s shareholders.
B reorganizations require at least 80% control to be successful. This isn’t the right choice if you’re looking to reduce your share count. A B reorganization doesn’t necessarily mean that you’ll lose any control. You could retain all of your shares if you wanted to. But if you’re looking to reduce the number of outstanding shares, other options are available.
If you are considering a business sale or acquisition, you may qualify for a tax benefit under Internal Revenue Code Section 368(a)(1)(A) if the transaction meets specific requirements. For example, you must not have shareholders other than yourself, and you cannot transfer all of your assets to another entity. You also need to meet specific financial criteria. If you meet those criteria, you may be eligible for a tax deduction for the amount paid to acquire the company.
Bankruptcy is an attempt to turn around a failing business. If a company is insolvent, then it cannot repay its creditors. When a company files for bankruptcy, it must submit a reorganization plan. An insolvent company will often file for Chapter 11 bankruptcy protection.
The plan’s purpose is to restructure the company’s finances and operations to return it to solvency. The goal is to put the company back on track to repay its debts. Insolvent companies often need to cut costs drastically. This includes cutting wages and benefits, laying off employees, closing stores, and selling assets. These actions are called “reorganizing.” A judge usually supervises reorganizations. The judge approves the reorganization plan, and the company emerges from bankruptcy if all goes well.
A Chapter 11 bankruptcy filing allows a company to reorganize its finances while continuing operations. This type of filing is often used when a company needs a period of time to restructure its debt and re-establish its financial structure. It also gives companies breathing room to negotiate with creditors and avoid liquidation. Companies may file for Chapter 11 protection if they cannot pay all of their debts or if they are unable to come to an agreement with their creditors about how to repay them.
If you’re considering a reorganization, you owe it to yourself, your shareholders, and your employees to follow a rigorous plan rather than winging it. You will make better decisions, keep everyone more involved and engaged, capture more value and avoid costly mistakes.
You can contact The McGuire Law Firm to speak with a Denver Business Attorney and learn if your transaction qualifies as a B reorganization for tax deferral purposes.