A merger or acquisition can be an exciting business move for your company in Texas, but it can also have tax consequences that make the deal a little less exciting. At the Starr Law Firm, P.C., one of our primary goals is to provide advice and assistance to businesses on the best actions to take to avoid excessive tax obligations.
Perhaps you are considering a standard merger and your company will be absorbing another. The plan is for your company to continue to offer both your own services and those of the other company. Chron.com explains that in this case, the taxes you pay will be on the value of the assets, stock or capital you acquire from the deal, not on the merger itself.
If the other business will no longer exist after you acquire its assets such as physical property, intellectual property or franchise rights, then it does not have to pay tax. However, if the other business does continue after your purchase, then it must declare the money made from the sale as income, and then pay taxes on any amount that exceeds its losses.
A tax-free merger may be an option for two companies under very specific circumstances. To qualify, the merger or acquisition must meet the IRS regulations for a reorganization. Your company and the other must form a new company, exchanging rather than purchasing assets and equity and effectively bringing them together under the ownership of the new entity.
Other strategies for minimizing the taxes owed in a merger or acquisition may also be available, depending on the specifics of the transaction and the companies involved. For more information about best practices for business tax strategies, visit our webpage.