Corporate Reorganizations: Structuring Internal Mergers, Split-Offs, Asset Transfers, Recapitalizations

Description

There are a variety of ways to approach a corporate reorganization. The selected method will depend on the desired goals of the company, the state laws which govern its entities or assets, the impact on its employees, and the tax ramifications of the reorganization, among other factors.

Several issues should be considered upfront. There may be a federal or state mandated waiting period for particular actions or required governmental filings and approvals. Shareholder approval and board approval may be necessary. There may be debt covenants that prohibit the transaction or require lender consent. Other third-party consents (for the transfer of IP rights, for example) may also be required.

Section 368 of the IRC provides for tax-free reorganizations when structured under its provisions. Tax counsel should be involved in any reorganization to minimize tax consequences and preserve tax attributes. The issues are particularly complex, and counter intuitive, when stock or assets move across borders.

An acquisition or merger often involves transferring employees from one entity to another. Sister entities may need to terminate and rehire affected employees and appropriately document the change in the employing entity, recognizing the employees' prior service years at the transferor entity and accrued vacation or paid time off. The company should also consider any obligations under the WARN Act.

Listen as our authoritative panel discusses the multifaceted issues companies and their counsel must navigate in planning and implementing corporate reorganizations.