As we’ve mentioned in earlier posts, there are many factors that affect the decision you will make on the most appropriate form of mergers & acquisitions (M&A) transaction to complete the deal you’re considering to combine two or more companies. While nowhere near comprehensive, the following table contains a short list of the most common, and sometimes most significant, factors affecting the form of an M&A transaction:
Factor Affecting Transaction Form | Merger | Asset Sale and Dissolution | Stock Sale |
| Required corporate approvals, including dissenters’ rights | Directors and shareholders of both parties must approve. | Seller’s director and shareholders and, if a reorganization, Buyer’s as well. | Buyer’s directors and, if a reorganization, its shareholders, but neither for the selling corporation |
| Tax-free reorganization (no step-up in basis) | Most tolerant of boot. | Use of boot limited or unavailable. | No boot permitted |
| Taxable transaction (step-up in basis) | Forward merger is treated as an asset transfer. Reverse merger is treated as a stock transfer. | Tax burdens are generally on the seller. | Tax burdens generally on the buyer. |
| Seller’s liabilities and obligations assumed by buyer | All | None, but there can be some exceptions on an asset-by-asset basis. | All remain with acquired the corporation. |
| Non-assignable contracts, leases, and other rights | All rights assigned by statute. | Most clearly violates non-assignment provisions. | Rights remain with acquired the corporation. |
| Resulting minority interests | None, but there are dissenters’ rights to deal with. | None, but there are dissenters’ rights to deal with if it’s a reorganization. | Non-selling shareholders remain. Their elimination may require later freeze-out. |
| California sales tax | None | Imposed, but tangible personal property subject to exceptions. | None |
| Unwanted assets in tax-free reorganization | May be separated before a type A reorganization. | Difficult to separate before a type C reorganization. | May be separated before a type B reorganization. |
| Application of federal and California corporate and securities laws | Rule 145 and Corp. Code 25103(c) and (h) are available. | Rule 145 and Corp. Code 25103(c) and (h) are available. | Corp. Code 25102(f) and 10 CCR 260.105.15 are available; Rule 145 and Corp. Code 25103(c) and (h) not available. |
It’s important to remember that while these factors frequently play a major role in determining the type of M&A transaction most suitable for the business combination you’re considering, they are not the only factors. Before you delve too deeply into the swirling rapids of any M&A transaction, you should consult with competent legal and business counsel to find out what is the best form of transaction for the business deal you’re contemplating.
As we’ve mentioned before, Finkel Law Group, with offices in San Francisco and Walnut Creek, has a thriving M&A practice that continues to grow as both buyers and sellers gain confidence in the direction the economy is heading, the impact of this growth on their particular market segments, and the increasing availability of capital to finance transactions of all sizes. Over the last 16 years, we have assisted buyers and sellers in industries as diverse as software, financial services, toys, agriculture, e-commerce, hotels and resorts, automobiles, auto parts distributors, and pet supplies, successfully navigate through all forms of M&A transactions.
If you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with an M&A transaction you are contemplating, please contact us at (925) 274-9600 or info@finkellawgroup.com to speak with one of our attorneys about your deal.
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