18 Jun 2024
Oh, Say Can You C: Learning More About Asset Acquisitions for C Corporations
When acquiring a C corporation, you’ll need to understand the advantages and disadvantages of an asset acquisition and its tax implications. The terms are of great importance as they appear in an asset purchase agreement, and you’ll need to review each defined term. Best practice dictates that you assemble all members of your tax, legal, and accounting teams to work thorough the contract's terms. Bear in mind that in asset acquisitions, the transferor's assets and liabilities do not automatically transfer to the transferee by operation of law. Instead, it’s up to counsel to outline the terms of the specific transfers of assets and liabilities in the asset purchase agreement.
Related Content
- Bootstrap Acquisitions
Learn more about bootstrap acquisitions which can occur when the acquirer in an M&A deal cannot afford the current equity value of the target. The target may need to reduce its equity value by effecting the bootstrap acquisition. To accomplish this, the target's equity value is reduced prior to closing the acquisition either through a distribution of assets to the target's shareholders or by making a debt-financed distribution. If a bootstrap acquisition is required, it will limit the types of tax-free structures that can be used.
- Basic Tax Considerations in Divestiture Transactions
Review this practice note to see how the sale of a target business can have different tax consequences depending on how it is structured.
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