September 2005
The after-tax consequences of buying or selling a business can vary dramatically depending on how the transaction is structured. Often, what’s good for one party is bad for the other. The structure of the transaction, therefore, can be driven by the relative bargaining positions of the parties and, in any event, should be taken into account in determining the price. The consequences of the transaction to employees and other service providers should be considered as well.
I. Taxable Transaction
A. Stock Purchase
B. Asset Purchase
C. Stock Purchase Treated as Asset Purchase
II. Tax-Free Transaction
III. Deferred or Contingent Payments; Holdbacks and Escrows
A. Original Issue Discount
B. Installment Method
C. “Tax-free” Reorganization
IV. Outstanding Options and Restricted Stock
A. ISOs
B. NQSOs
C. Restricted Stock
D. Golden Parachute Issues
V. Covenants Not to Compete; Consulting and Employment Arrangements
A. Consequences to the Acquiror
B. Consequences to the Recipient
For more information, please contact the author Chip Wry.
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