Acquiring a C Corp

July 31, 2024

by a searcher from Harvard University - Harvard Business School in Salt Lake City, UT, USA

I've tried to unpack posts on C Corp/QSBS/considerations upon exit, but I've come across an interesting company that is registered as a C Corp. Would my holdco purchase the assets of the C Corp, and the new business be run under the new LLC? What are the tax implications of acquiring a C Corp and/or selling one? Would love to connect with someone who can speak quickly to this.

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Reply by a searcher
from Texas Tech University in Austin, TX, USA

Tax Implications for Acquiring a C Corporation: 1. Asset Purchase vs. Stock Purchase: • Asset Purchase: The acquiring company (holding company) purchases the assets of the C Corporation. This allows the buyer to allocate the purchase price to the assets based on their fair market value, potentially creating a stepped-up basis in the assets, which can provide depreciation and amortization benefits. • Stock Purchase: The acquiring company purchases the stock of the C Corporation. The buyer inherits the basis of the C Corporation’s assets and liabilities, which might not offer the same tax benefits as an asset purchase. 2. Tax Basis and Depreciation: • In an asset purchase, the buyer can benefit from a stepped-up basis in the assets, leading to higher depreciation deductions. • The allocation of the purchase price to different asset classes (e.g., tangible assets, goodwill) must follow IRS guidelines and can impact future tax deductions. 3. Goodwill and Intangibles: • Goodwill and other intangible assets can be amortized over 15 years, providing tax deductions for the buyer. 4. Transaction Costs: • Costs associated with the acquisition, such as legal and accounting fees, may be capitalized and added to the basis of the acquired assets.

Reply by a searcher
from Texas Tech University in Austin, TX, USA

Tax Implications for Selling a C Corporation: 1. Double Taxation: • C Corporation Level: When a C Corporation sells its assets, it pays corporate tax on any gain realized from the sale. • Shareholder Level: When the proceeds from the asset sale are distributed to shareholders, they are taxed again at the individual level, resulting in double taxation. 2. Capital Gains Tax: • The gain on the sale of assets by the C Corporation is subject to corporate capital gains tax rates. • Distributions to shareholders are typically taxed at dividend rates. 3. Liquidation of C Corporation: • If the C Corporation is liquidated following the asset sale, the shareholders may face additional tax implications, as the liquidation itself can trigger taxable events.

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