Transaction Structures

Question 1

What are the main 2 transaction structures you could use to acquire another company
?

Answer 1

Stock purchase, asset purchase

Question 2

Stock purchase

Answer 2

Buyer acquires all assets, liabilities and off BS items
Seller pays tax on entire purchase price
Assets not written up on tax balance sheet
Buyer can not deduct new D n A from written-up assets for tax
Creates DTL
Most common for public companies and large private companies
Sellers favour it

Question 3

Asset purchase

Answer 3

Buyer only acquires certain assets and liabilities from seller
Seller pays tax on entire purchase price + total value assigned yo all assets - book value of all assets
Assets are written up on the tax BS
Buyer can deduct new DNA from written up assets for tax purposes
Creates no DTL
Most common for private companies
Buyers favour it

Question 4

Would a seller prefer a Stock Purchase or an Asset Purchase? What about the buyer?

Answer 4

A seller almost always prefers a Stock Purchase to avoid double taxation and to dispose of all its Liabilities
The buyer almost always prefers an Asset Purchase so it can be more careful about what it acquires and to get the tax benefit from being able to deduct D&A on Asset Write-Ups for tax purposes