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Area: Business Reorganizations
Group: Business & Corporate Services
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At one level, a business reorganization may be important to achieve a business objective, such as better financial control or increased profits through reduced expenses of operation. However, business reorganizations should never be undertaken without a thorough understanding of the tax consequences of that reorganization. In short, under the Internal Revenue Code some corporate reorganizations are tax free; others are not.
Reorganizations may involve such things as—
- Changing a corporate name.
- Change in entity (for example, from a limited liability company to a corporation).
- Change in state of incorporation.
- Older generation shareholders exchanging their common stock for preferred stock so that younger generation shareholders can own the common stock.
- Acquisition of another corporation.
- Merger of two corporations.
- Debt restructuring.
In reorganizations involving the acquisition of another corporation, careful consideration must be given to whether the reorganization will be accomplished through acquiring assets of the other corporation or through acquiring the stock of the other corporation. Each approach further involves careful consideration of the financial liabilities of the acquired company, unwanted assets associated with the transaction, financial accounting, shareholder approvals, Securities and Exchange Commission (SEC) regulations, antitrust issues, and various other legal restrictions that may apply to the transaction.
Attorneys who practice in this area advise clients on the rights, obligations, risks, and benefits that arise from business reorganizations.
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The following attorneys practice in this area: