In the first part of this blog series, we discussed types A, B, and C corporate reorganizations. The Internal Revenue Code provides other ways a company can be restructured. Types D, E, F, and G corporate reorganizations are four more options available under the Internal Revenue Code. While the divisive type D reorganization was discussed in an earlier blog post, this post will focus on types E, F, and G.
What is a Type E Reorganization?
A type E reorganization is a recapitalization. A recapitalization means the capital structure within the entity is rearranged within an already existing corporate framework. The shareholders or creditors of a corporation exchange their interests for other equity or debt interests, while the assets of the corporation remain unchanged. Shareholders do not recognize taxable gain on type E reorganizations unless boot has been received.
Based on the consideration exchanged in the transaction, recapitalizations can fall into four categories, including:
- Bonds exchanged for stock
- Stock for bonds
- Bonds for bonds
- Stock for stock
Like other tax-free reorganizations, the company must have a sufficient business purpose to qualify for tax-free treatment.
What is a Type F Reorganization?
A type F reorganization is a change in identity, form, or place of organization of the company. Usually, an F reorganization will occur when a company transfers all of its assets to another company to prepare for a merger or acquisition. There are six requirements for a type F reorganization to be considered tax-free:
- The transferor corporation’s stock must be exchanged for the resulting corporation’s stock.
- The shares of the transferring corporation and resulting corporation must be owned by the same person in the same proportions at the beginning and end of the transaction.
- A new corporation must usually be formed so re no carryover tax attributes exist in the resulting company.
- The transferor corporation must liquidate for federal tax purposes.
- Following the reorganization, only the resulting corporation may hold the property held by the transferor corporation right before the F reorganization.
- Right after the reorganization, the resulting corporation may not hold property acquired from any other company apart from the transferor corporation.
Although they are complex, an F reorganization can come with several benefits. The type F reorganization let owners plan for the growth of the company while incurring no taxes. An F reorganization can also be helpful because it permits the sale of some of the business assets, rather than all of them. The type F reorganization can defer gain recognition regarding rollover equity.
What is a Type G Reorganization?
A type G reorganization is used for bankrupt or insolvent companies to transfer assets in a Title 11 bankruptcy. A type G reorganization allows a debtor corporation to transfer assets without tax consequences to an acquiring corporation. This reorganization is followed by a distribution of the stock and securities to the debtor company’s security holders and new investors.
Contact an Experienced New York Business Attorney
Corporate reorganization can be complex and it’s vital to have a skillful attorney by your side who can provide you with the strategic guidance you need. At Brinen & Associates, we provide dedicated representation to businesses, shareholders, and corporate owners for a wide variety of corporate matters, including those involving restructuring. Call (212) 330-8151 or send us a message to schedule a consultation.