IMHO-- always important not to lose sight of the goal.
They can, however, sweeten a deal if a more profitable company swoops in and buys the loss company.
Section 382 of the tax code sets an annual limit on the net operating loss tax assets the combined company can use. It is based on the market value of the target company right before the change in ownership, multiplied by a long-term, tax-exempt rate set by the Internal Revenue Service.
Consequently, if the target company is practically worthless, that annual cap can be minuscule.
For companies that have filed Chapter 11 bankruptcy, however, there are two exceptions to that restriction.
Under one, the cap on net operating loss use is calculated after the deal, when the market value would likely be higher.
The other option allows the combined company unlimited access to those tax assets. But for the combined company to qualify, half of its stock must have been held by creditors and shareholders who held the target company’s debt for at least 18 months prior to the Chapter 11 filing or whose debt “arose in the ordinary course” of the target company’s “trade or business.”
