7 Types of Corporate Reorganization
What is corporate reorganization?
Corporations (businesses) typically reorganize for one of two reasons: To improve efficiency or to increase revenue. “Corporate reorganization,” then, refers to any change to a company’s internal or departmental structure aimed at one or both of these objectives. The IRS recognizes 7 types of corporate reorganization.
The 7 types of corporate reorganization include:
- Type A: Mergers and Consolidation
- Type B: Acquisition (Target Corporation Subsidiary)
- Type C: Acquisition (Target Corporation Liquidation)
- Type D: Transfer
- Type E: Recapitalization
- Type F: Identify Change
- Type G: Transfer
Reorganization happens, for example, when businesses need to address major problems, or when they look to overhaul strategies for management structure or market focus.
Whether it arises from new leadership or even bankruptcy, restructuring focuses largely on increased efficiency and profitability. Because it is a significant undertaking that impacts a businesses’ bottom line, it also requires consideration, planning, and the foresight of experienced professionals who can guide you through the process.
Corporate reorganizations can be complicated - but finding legal help doesn’t have to be. Contact Hendershot Cowart, P.C. today to see how our team can guide and protect your organization’s restructuring.
The IRS Revenue Code (Section 368) identifies seven different types of corporation reorganization.
Type A: Mergers and Consolidations
A statutory merger or acquisition is based on one corporation acquiring another’s assets.
Type B: Acquisition (Target Corporation Subsidiary)
A Type B reorganization involves one corporation acquiring another’s stock, which then becomes a subsidiary of the acquiring company. While the transaction may be made solely to acquire voting stock, it can also be one of several transactions that make up a larger plan for acquiring control. An acquisition carried out in this type of reorganization occurs in a short period of time, such as within a year.
Type C: Acquisition (Target Corporation Liquidation)
Target corporations are required to liquidate in Type C acquisition, unless requirements are waived by the IRS. Any shareholders that have a stake in the company will also have a stake in the acquiring company. Reorganization provisions concern tax consequences, not liquidation rules.
Type D: Transfer
Type D transfers are a form of corporate restructuring which can include both corporate split-offs or spinoffs.
Type E: Recapitalization
Recapitalization transactions involve a company’s shareholders exchanging stocks and securities for new stocks, securities, or both. This type of reorganization involves only on corporation, and focuses on reconfiguring the company’s capital structure. Examples of this type of reorganization include plans stock-for-stock recapitalization, bonds-for-bonds moves, and transactions involving stocks-for-bonds.
Type F: Identity Change
The IRS defines Type F reorganization as one corporation changing its identity, form, or place of organization. This reorganization typically applies when companies change business names, the state where they do business, or make changes to its articles of incorporation (corporate charter), and where there is a transfer from the prior company to the new corporation.
Type G: Transfer
These reorganizations involving transferring all or some assets of a company that must file bankruptcy to a new corporation. Type D rules for distribution are used to distribute the controlling company’s stock and securities to the former company’s shareholders.
Find an attorney with the right experience.
Businesses are entities prone to change, and successful businesses are those with the fluidity to adapt and address those changes effectively, and the wherewithal to trust proven attorneys in matters and transactions critical to their future success.
If you have questions about corporate restructuring and reorganization and how our award-winning business lawyers at Hendershot Cowart, P.C. can help you, call (713) 909-7323 to request an initial consultation. We proudly serve a range of individuals and businesses throughout Houston and the state of Texas.