![](http://investorshub.advfn.com/images/default_ih_profile2_4848.jpg?cb=0)
Monday, February 15, 2021 10:19:26 AM
By WILL KENTON
Reviewed By DAVID KINDNESS
Updated Nov 30, 2020
What Is a Reverse Triangular Merger?
A reverse triangular merger is the formation of a new company that occurs when an acquiring company creates a subsidiary, the subsidiary purchases the target company, and the subsidiary is then absorbed by the target company.
A reverse triangular merger is more easily accomplished than a direct merger because the subsidiary has only one shareholder—the acquiring company—and the acquiring company may obtain control of the target's nontransferable assets and contracts.
KEY TAKEAWAYS
A reverse triangular merger is a new company that forms when an acquiring company creates a subsidiary, that subsidiary purchases the target company, and the target company then absorbs the subsidiary.
Like other mergers, a reverse triangular merger may be taxable or nontaxable depending on factors listed in Section 368 of the Internal Revenue Code.
At least 50% of the payment in a reverse triangular merger is the stock of the acquirer, and the acquirer gains all assets and liabilities of the seller.
A reverse triangular merger, like direct mergers and forward triangular mergers, may be either taxable or nontaxable, depending on how they are executed and other complex factors set forth in Section 368 of the Internal Revenue Code. If nontaxable, a reverse triangular merger is considered a reorganization for tax purposes.
A reverse triangular merger may qualify as a tax-free reorganization when 80% of the seller’s stock is acquired with the voting stock of the buyer; the non-stock consideration may not exceed 20% of the total.
Understanding Reverse Triangular Mergers
In a reverse triangular merger, the acquirer creates a subsidiary that merges into the selling entity and then liquidates, leaving the selling entity as the surviving entity and a subsidiary of the acquirer. The buyer’s stock is then issued to the seller’s shareholders.
Because the reverse triangular merger retains the seller entity and its business contracts, the reverse triangular merger is used more often than the triangular merger.
In a reverse triangular merger, at least 50% of the payment is the stock of the acquirer, and the acquirer gains all assets and liabilities of the seller. Because the acquirer must meet the bona fide needs rule, a fiscal year appropriation may be obligated to be met only if a legitimate need arises in the fiscal year for which the appropriation was made.
A reverse triangular merger is attractive when the seller’s continued existence is needed for reasons other than tax benefits, such as rights relating to franchising, leasing or contracts, or specific licenses that may be held and owned solely by the seller.
Since the acquirer must meet the continuity of business enterprise rule, the entity must continue the target company’s business or use a substantial portion of the target’s business assets in a company.
The acquirer must also meet the continuity of interest rule, meaning the merger may be made on a tax-free basis if the shareholders of the acquired company hold an equity stake in the acquiring company. In addition, the acquirer must be approved by the boards of directors of both entities.
Recent ASTI News
- Ascent Solar Technologies Announces Debt Pay Off for Outstanding Balances • GlobeNewswire Inc. • 06/21/2024 12:00:00 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 06/14/2024 08:30:10 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/12/2024 09:53:56 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 11:52:53 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 11:51:04 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 11:49:56 PM
- Form PRE 14A - Other preliminary proxy statements • Edgar (US Regulatory) • 06/06/2024 08:35:04 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/30/2024 12:05:09 PM
- Form 424B5 - Prospectus [Rule 424(b)(5)] • Edgar (US Regulatory) • 05/30/2024 12:00:29 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/23/2024 09:27:23 PM
- Form 424B5 - Prospectus [Rule 424(b)(5)] • Edgar (US Regulatory) • 05/23/2024 09:26:14 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/16/2024 08:45:14 PM
- Form 424B5 - Prospectus [Rule 424(b)(5)] • Edgar (US Regulatory) • 05/16/2024 08:40:50 PM
- Ascent Solar Collaborates with University of Stuttgart IGTE for the Development and Distribution of Sustainable Power Generation Technology • GlobeNewswire Inc. • 05/16/2024 12:30:00 PM
- Ascent Solar Technologies Receives Firm Order of Thin-Film PV from Mega-Constellation Satellite Manufacturer to Power Next Generation Hardware • GlobeNewswire Inc. • 05/14/2024 12:55:00 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 05/09/2024 08:10:49 PM
- Ascent Solar Technologies, Inc. Announces Second and Third Closings of Public Offering of Common Stock and Pre-Funded Warrants at $0.14 Per Share • GlobeNewswire Inc. • 04/18/2024 09:11:53 PM
- Momentus and Ascent Solar Technologies Partner to Bring to Market Leading-Edge Solar Arrays • Business Wire • 04/17/2024 02:00:00 PM
- Momentus and Ascent Solar Technologies Partner to Bring Leading-Edge Solar Arrays to Market • GlobeNewswire Inc. • 04/17/2024 02:00:00 PM
- Ascent Solar Technologies, Inc. Announces Initial Closing of Public Offering of Common Stock and Pre-Funded Warrants • GlobeNewswire Inc. • 04/12/2024 09:00:00 PM
- Ascent Solar Technologies, Inc. Announces Pricing of $6,000,000 Public Offering of Shares of Common Stock • GlobeNewswire Inc. • 04/10/2024 12:48:54 PM
- Ascent Solar Technologies Achieves CIGS Technology Power Generation Milestones at Production Scale with Thin Film • GlobeNewswire Inc. • 03/25/2024 02:30:00 PM
- Ascent Solar Technologies Announces Substantial Debt Reduction and Plan for Full Payoff • GlobeNewswire Inc. • 03/21/2024 01:25:00 PM
- Ascent Solar Technologies Announces Warrants Repurchase Agreements • GlobeNewswire Inc. • 03/14/2024 01:25:00 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 03/11/2024 09:15:11 PM
Last Shot Hydration Drink Announced as Official Sponsor of Red River Athletic Conference • EQLB • Jun 20, 2024 2:38 PM
ATWEC Announces Major Acquisition and Lays Out Strategic Growth Plans • ATWT • Jun 20, 2024 7:09 AM
North Bay Resources Announces Composite Assays of 0.53 and 0.44 Troy Ounces per Ton Gold in Trenches B + C at Fran Gold, British Columbia • NBRI • Jun 18, 2024 9:18 AM
VAYK Assembling New Management Team for $64 Billion Domestic Market • VAYK • Jun 18, 2024 9:00 AM
Fifty 1 Labs, Inc Announces Acquisition of Drago Knives, LLC • CAFI • Jun 18, 2024 8:45 AM
Hydromer Announces Attainment of ISO 13485 Certification • HYDI • Jun 17, 2024 9:22 AM