Question

Discuss several advantages and disadvantages to the shareholders in a target entity that is acquired via taxable stock acquisition vs. a taxable acquisition of net assets? Provide recommended negotiation points for each transaction. Discuss several advantages and disadvantages to the acquiring entity? Include recommended discussion points to consider in determining each transaction type.

Answer 1

                                              Comparison of Taxable Asset and Stock Deals

		Asset Deal		Stock Deal
Assets / Liabilities		Acquirer may cherry pick wanted assets/liabilities, avoiding unwanted liabilities. However, some assets may not be transferred easily without third party consents.		All liabilities transfer to the buyer by operation of law, wanted or not. However, buyer can contractually allocate liabilities to seller by selling them back.
Complexity / Cost		Complex & costly process that requires identification, valuation, and title transfer of individual assets.		Relatively inexpensive and easy to execute.
Taxes		If target liquidates, then there are two levels of tax, at corporate level and again at the shareholder level when liquidation proceeds are distributed.		Only one level of tax–at shareholder level.
Tax Basis		The buyer's basis in the acquired assets is stepped up to the purchase price.		The buyer's basis in acquired stock is stepped up to the purchase price. Buyer assumes a carryover basis in the acquired assets.
Goodwill		Tax-deductible & amortized over 15 years for tax purposes under IRC Sec. 197.		No tax-deductible.