Nina Yablok email@example.com
Basic types of acquisition
Cash Purchase of Shares
Cash Purchase of Assets
Stock as consideration for Shares
Stock as consideration for Assts
CASH PURCHASE OF SHARES:
a. Approval by shareholders of purchasing corporation is not required.
b. Formal meeting of shareholders of corporation sought to be acquired to approve
sales of shares is not required.
c. Approval by board of directors of corporation sought to be acquired is not needed.
d. Consideration to be paid for shares, as agreed on by purchasing corporation and
selling shareholders, may consist of cash or cash and other combinations of cash,
notes, debt securities, shares, etc.
e. Acquiring corporation is not liable for debts or liabilities of acquired corporation.
f. Name and reputation of acquired corporation may be continued as separate
g. Shareholders of acquiring corporation are not subject to dilution of ownership
h. Acquired corporation may continue to use its net operating loss carryforward in
i. Mechanics of transfer are simple if shareholders are few in number:
(1) Uniform Commercial Code‐‐Bulk Sales Division is not applicable.
(2) Purchase price is not withheld until sales tax and employment contribution
clearance are received.
(3) Separate instruments of conveyance are not needed for personal and real
(4) Leases and contracts belonging to acquired corporation do not need to be
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j. Transaction is not subject to California Sales and Use Tax.
a. Shareholders of acquired corporation must pay income tax on any gain realized on
sale of their shares to acquiring corporation.
b. Acquiring corporation does not automatically receive new income tax basis for
assets of acquired corporation.
c. Acquiring corporation normally cannot use net operating loss carryover income tax
deduction of acquired corporation to reduce its own income.
d. Unknown and contingent liabilities of acquired corporation may reduce value of its
shares below purchase price paid by acquiring corporation.
e. Minority shareholders of acquired corporation who refuse to sell their shares may
hinder future corporate operations.
f. Securing purchase of all, or substantially all, shares of corporation sought to be
acquired may be unduly expensive and burdensome if shareholders are numerous
and geographically scattered, or its management opposes purchase.
CASH PURCHASE OF ASSETS
a. Acquiring corporation gets new income tax basis for assets purchased from
b. Acquiring corporation is not required to assume any liabilities of selling
corporation, except strict liability in tort for defective products.
c. Shareholder approval of purchase by shareholders of acquiring
corporations is not required.
d. Neither dissenting shareholders of acquiring corporation nor dissenting
shareholders of selling corporation have right to require purchase of
e. Acquiring corporation may reject obsolete or worthless assets of selling
corporation, including long overdue accounts receivable.
f. Transaction is not subject to California securities laws.
a. Sale proceeds may be subject to tax at both corporate and shareholder
level if proceeds are distributed to shareholders.
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b. California state sales tax must be paid on portion of sale proceeds received
for fixtures and equipment used in activity requiring sales tax permit from
California State Board of Equalization.
c. Acquiring corporation is not entitled to benefit of net operating loss
carryover income tax deduction belonging to selling corporation.
d. Sale may require compliance with requirements of Uniform Commercial
Code‐‐Bulk Sales Division.
e. Sales proceeds must be withheld in escrow to protect acquiring
corporation from liability under successor liability statutes for amounts
owed by selling corporation for sales tax or unemployment compensation
f. Acquiring corporation may be subject to products liability claims for
injuries subsequently caused by products originally sold by the selling
g. Separate documents of conveyance or transfer must be drafted, executed,
and registered or recorded for personal and real property.
h. Sale may require obtaining consent from third person or corporation to
assign or transfer lease or other contracts.
SHARES FOR SHARES
a. Mechanical simplicity:
(1) Compliance with escrow and notice requirements of Uniform Commercial Code‐‐Bulk Sales
Division is not required.
(2) Separate instruments of conveyance need not be drafted, executed, and recorded for
various assets of acquired corporation.
b. Approval of board of directors and management of corporation sought to be acquired is not
c. Acquiring corporation is not liable after share exchange for debts, liabilities, and obligations of
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d. Separate identity and goodwill of acquired corporation are preserved after share exchange.
e. Dissenting shareholders of corporation sought to be acquired have no right to require their
shares to be purchased for cash at their appraised fair market value.
f. Income tax advantages:
(1) Share exchange can be arranged as income tax‐free reorganization.
(2) By dissolving or merging acquired corporation into itself, acquiring corporation can obtain net
operating loss carryover deduction belonging to acquired corporation.
g. Transaction is not subject to California Sales and Use Tax.
a. Permit must be obtained from California Commissioner of Corporations qualifying
shares to be issued in exchange by acquiring corporation.
b. Acquiring corporation cannot acquire new income tax basis for assets of acquired
corporation, even by dissolving or merging with acquired corporation after
c. Proposed share exchange must be approved by affirmative vote of majority of all
outstanding shares of each class of acquiring corporation, regardless of any
restrictions on their voting rights.
d. Undisclosed and unknown liabilities of acquired corporation may render shares of
acquired corporation worthless.
e. When corporation sought to be acquired has large number of shareholders
geographically scattered, cost and effort required to obtain their acceptance of
share exchange offer may be prohibitive.
f. Shareholders of acquiring corporation who do not approve of proposed exchange
may require their shares to be purchased for cash at their appraised fair market
g. Shareholders of acquired corporation who refuse to exchange their shares may
constitute group of minority shareholders hampering effective management of
acquired corporation by acquiring corporation after exchange.
SHARES AS CONSIDERATION FOR ASSETS
a. Acquiring corporation does not automatically become liable for debts and liabilities of
selling corporation, with possible exception of products liability claims.
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b. There is no minority interest to harass acquiring corporation in managing business and
assets acquired from selling corporation.
c. Assets‐for‐shares exchange can be arranged to be income‐tax‐free.
d. Acquiring corporation succeeds to any net operating loss carryover of acquired corporation.
a. Proposed exchange must be approved by boards of directors, and principal terms of proposed
exchange must be approved by outstanding shares of each class of both acquiring and selling
b. Permit qualifying shares to be issued by qualifying corporation or its parent in exchange
generally must be obtained from California Commissioner of Corporations.
c. Dissenting shareholders of either acquiring or selling corporation have right to require that their
shares be purchased by their corporation for cash at appraised fair market value of shares on
day preceding first announcement of terms of proposed assets‐for‐shares exchange.
d. Acquiring corporation does not obtain new income tax basis for assets it is acquiring from selling
corporation in assets‐for‐shares exchange.
e. Tangible personal property transferred for stock may be subject to California sales tax.
f. Transfer of assets from selling corporation to acquiring corporation may require compliance
with Uniform Commercial Code‐‐Bulk Sales Division.
g. To protect acquiring corporation from liability under successor liability statutes for sales taxes
and unemployment compensation insurance contributions owed by selling corporation,
exchange of shares for assets cannot be consummated until selling corporation obtains:
(1) Sales tax clearance from California State Board of Equalization.
(2) Statement from California State Department of Benefit Payments that no amounts are due
from selling corporation for unemployment compensation insurance contributions.
a. Mechanical simplicity.
(1) Filing merger agreement with Secretary of State perfects merger.
(2) On perfection, surviving corporation succeeds without further transfer to all rights
and properties of each disappearing corporation to merger.
(3) Surviving corporation need not pay any local agency transfer fees for licenses,
permits, registrations, and other privileges if merger does not result in a change of
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b. Minority shareholders' only method of objecting to merger is sale of shares back to
c. Effective date of merger can be controlled.
d. Income tax advantages, including:
(1) No taxable gain to shareholders or surviving corporation.
(2) No requirement that only voting shares of surviving corporation can be exchanged
for shares and assets of disappearing corporations in tax‐free merger (shares‐for‐shares
exchange), (C) (assets‐for‐shares exchange).
(3) Surviving corporation succeeds to any net operating loss carryover belonging to
(4) Transaction is not subject to California Sales and Use Tax.
a. Surviving corporation automatically becomes liable for debts and liabilities of each disappearing
b. Outstanding shares of each class of each constituent corporation must usually approve principal
terms of merger.
c. Dissenting shareholders may require that corporation purchase their shares at fair market value
on day preceding first announcement of terms of proposed merger.
d. Offer or sale of securities to be issued or exchanged in merger must comply with securities laws.
e. Disappearing corporation will lose name and identity in merger, unless surviving corporation
changes its name to that of disappearing corporation.
f. Surviving corporation will not obtain new income tax basis for assets of disappearing