Mergers and Acquisitions

1. Introduction
2. Content of Course 00:02:16
3. Importance of Planning & Structure 00:06:52
4. MakRic Enterprises, Inc. v. CIR (2017): The Importance of Structure - Purchase of Alpha Stock 00:07:10
5. MakRic Enterprises, Inc. v. CIR (2017): The Importance of Structure - Distribution of Alpha Stock 00:10:38
6. Types of Businesses 00:14:49
7. Types of Transactions 00:19:59
8. Asset Sale vs. Stock Sale 00:23:16
9. Stock Sale 00:26:25
10. Asset Sale 00:29:24
11. §338 Elections 00:32:33
12. §338(h)(10) 00:36:26
13. §338 Elections Outside of S Corps 00:37:49
14. Basis Allocation in Asset Deals 00:39:29
15. Asset Classes 00:40:17
16. Residual Allocation 00:42:10
17. Allocation with Asset Sales 00:43:42
18. Significance of Goodwill 00:48:17
19. C Corporations and Personal GW 00:50:26
20. Covenants Not To Compete 00:56:16
21. Employment Agreements 00:58:06
22. Liability Concerns in Asset Sales 00:58:43
23. Tax Consequences of Asset Sale 01:00:37
24. Characterization of Gain 01:00:45
25. Capital Gains Rates 01:01:32
26. Effect of Debt 01:03:26
27. Other Tax Rates 01:05:59
28. Capital Loss Carryovers 01:07:58
29. 1377 Election: S Corporation Stock Sale 01:09:20
30. Pre-Sale Distribution to S Owners Combined with Installment Sale 01:11:26
31. Partnership Basis Adjustments 01:13:02
32. Partnership Basis Adjustments -  §754 Election 01:16:33
33. Rollover Equity and “Type F Reorgs” 01:17:59
34. Private Equity Fund Wants to Acquire Target - Example 01:18:17
35. Business Brokers 01:26:04
36. Advantages of Using Brokers 01:26:18
37. Disadvantages of Using Brokers 01:27:16
38. Selling to Employees or Family 01:29:28
39. Considerations 01:28:52
40. Essential Documents 01:32:38
41. Confidentiality Agreements (NDAs) 01:32:56
42. Letters of Intent 01:34:29
43. Agreement of Sale 01:35:19
44. The Due Diligence Process 01:37:14
45. The Due Diligence Process - Preliminary Evaluation 01:37:19
46. The Due Diligence Process - Formulating The Due Diligence Program 01:38:32
47. The Due Diligence Process - Perform Compliance-Oriented Procedures 01:39:18
48. Other Considerations 01:40:09
49. Presentation Closing 01:41:21

• 1377 Election 01:09:23, 01:11:02
• 338 Election 00:32:33
• 754 Election 01:16:33
• Acquisition 00:00:06, 00:06:18
• Allocation 00:39:59, 00:41:49, 00:42:13, 00:57:57, 01:09:39
• Amortization 00:48:58
• Asset 00:15:09, 00:25:04, 00:29:40, 00:35:04, 00:38:33, 00:47:48
• Asset Sale 00:02:58, 00:24:56, 00:29:24, 00:40:25, 00:43:55, 00:59:21, 01:00:40
• Capital Gain 00:26:36, 00:32:16, 00:48:34, 00:50:20, 01:00:47
• Capital Losses 01:07:58
• C Corporation 00:17:00, 00:35:17, 00:50:26
• Code section 1060 00:39:47, 00:43:42
• Code Section 338(h)(10) 00:03:57, 00:05:22, 00:36:26, 00:38:49
• Depreciation 00:32:08, 00:49:00
• Due Diligence 00:06:34, 01:37:16
• Equity 00:04:29
• Fair Market Value (FMV) 00:40:00
• Form 8594 00:44:07, 00:47:42
• Goodwill 00:42:09, 00:48:29
• Inventory 01:01:08
• Liability 00:19:54, 00:59:46, 01:00:33, 01:36:01
• Limited Liability Company (LLC) 00:15:51, 00:17:40
• Limited Liability Partnership (LLP) 00:18:56
• Merger 00:00:06, 00:06:18, 00:20:42
• Ordinary Income 01:00:52
• Rollover Equity 00:05:07
• S Corporation 00:16:59, 00:36:43, 01:09:29, 01:18:40
• Sole Proprietor 00:15:07, 00:15:28
• Stock Sale 00:02:59, 00:26:27
• Transaction 00:03:58, 00:04:36, 00:10:46, 00:12:13, 00:20:00, 00:38:42, 00:46:28
• Wages 00:58:18

1377 Election: A 1377(a)(2) election allows the shareholder who terminated his or her interest in the S-corporation to recognize only the pro rata share of items attributable to the portion of the year though the termination date.

338 Election: By making a section 338(g) election, a domestic corporate purchaser typically enjoys a step-up in basis in foreign target assets, eliminates historic U.S. federal income tax attributes (e.g., earnings and profits and foreign tax pool) and closes the foreign target's tax year. A corporation that purchases at least 80 percent of the total voting power and value of the stock of another corporation (the target corporation) within a 12-month period can make a Section 338 election to treat the stock purchase as a purchase of the target corporation's assets.

754 Election: Section 754 of the tax code allows partnerships to adjust their tax basis to prevent new partners from paying taxes on gains and losses they didn't benefit from.

Acquisition: An acquisition is referred to as a business transaction in which one firm buys all or part of another company's stock or assets. The acquisition commonly happens to gain control of and expand on the target company's strengths while also capturing energies. This can also be accountable for an acquisition definition.

Allocation: Allocation is the separation of profits by percentage for each member.

Amortization: An accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. (investinganswers.com)

Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.

Asset Sale: An asset sale is the purchase of individual assets and liabilities. In an asset sale, the seller retains possession of the legal entity and the buyer purchases individual assets of the company, such as equipment, fixtures, leaseholds, licenses, goodwill, trade secrets, trade names, telephone numbers, and inventory. Asset sales generally do not include cash and the seller typically retains the long-term debt obligations. This is commonly referred to as a cash-free, debt-free transaction.

C Corporation: A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies are treated as C corporations for U.S. federal income tax purposes.

Capital Gain: Capital gain is an economic concept defined as the profit earned on the sale of an asset that has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.

Capital Losses: A capital loss occurs when there is a “sale or exchange” of a “capital asset” at a loss.

Code Section 338(h)(10): Code Section 338(h)(10) allows the parties in a sale of stock of a corporation to treat the transaction for federal income tax purposes as if it had been structured as an asset sale.

Code section 1060: Section 1060 of the code requires that in an “applicable asset acquisition,” the purchaser’s basis in the acquired assets and the seller’s consideration with respect to the acquisition must be allocated among the assets pursuant to the “residual method

Depreciation: A reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Due Diligence: Due diligence is a process or effort to collect and analyze information before making a decision or conducting a transaction so a party is not held legally liable for any loss or damage. The term applies to many situations but most notably to business transactions.

Equity: The total value of your business after you’ve subtracted what you owe [“liabilities”] from what you own [“assets”].

Fair Market Value (FMV): The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies. In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing.

Form 8594: Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale if goodwill or going concern value attaches, or could attach, to such assets and if the purchaser's basis in the assets is determined only by the amount paid for the assets.

Goodwill: Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, a goodwill definition is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process.

Inventory: A company's inventory typically involves goods in three stages of production: raw goods, in-progress goods, and finished goods that are ready for sale. Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilization.

Liability: In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

Limited Liability Company (LLC): An LLC is a corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Can be a single member (much like a sole proprietor) or a multi-member. It shares certain traits of both corporations as well as partnerships or sole proprietorships. It is not a corporation.

Limited Liability Partnership (LLP): A limited liability partnership is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence.

Merger: A merger is a business deal where two existing, independent companies combine to form a new, singular legal entity. Mergers are voluntary. Typically, both companies are of a similar size and scope and both stand to gain from the transaction.

Ordinary Income: Ordinary income is any type of income earned by an organization or an individual that is taxable at ordinary rates. It includes (but is not limited to) wages, salaries, tips, bonuses, commissions, rents, royalties, short-term capital gains, unqualified dividends, and interest income.

Rollover Equity: Rollover equity refers to a portion of the proceeds from the sale of your business that you reinvest into the company the buyer uses to acquire their business

S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.

Sole Proprietor: A business that legally has no separate existence from its owner. The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

Stock Sale: A stock sale is the purchase of the owner’s shares of a corporation. Through a stock sale, the buyer purchases the selling shareholders’ stock directly thereby obtaining ownership in the seller’s legal entity. The actual assets and liabilities acquired in a stock sale tend to be similar to that of an assets sale. Assets and liabilities not desired by the buyer will be distributed or paid off prior to the sale. Unlike an asset sale, stock sales do not require numerous separate conveyances of each individual asset because the title of each asset lies within the corporation.

Transaction: In QuickBooks, a transaction type identifies what kind of transaction occurred, such as a customer transaction, bill payment or a bank transfer. When you submit a transaction, you type in a transaction code to represent it.

Wage: A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.