At closing, does my LLC and Target company begin a new entity

April 28, 2022

by a searcher from Emory University - Goizueta Business School in Marietta, GA, USA

Hello SF family,
I'm conferring with my law team and making sure that I understand the 'rules' about who my acquiring entity is before and after closing. For example, I'm now a Service Disabled Veteran Owned Small Business (SDVOSB). I have an acquisition target, and we are starting post LOI negotiations. Is my organization the same day after closing, or is it a new (DUNS number) organization? Will I have the "20 Years of experience" or will I be a 'new' company? Will I have to get re-verified as a Veteran Owned Organization?

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Reply by a searcher
from Columbia College in Salt Lake City, UT, USA

In my experience, most acquisitions ought to be their own new entity though it may be wholly owned by the "mothership" entity with 20 years experience (so you can claim it still). This is particularly true if the existing entity has other lines of business unrelated to the new acquisition or if you plan to acquire other companies beyond the current project. It also allows you to start with a "clean slate" so any issues isolate liability to the new entity alone. I don't have any experience with The particulars of maintaining benefits associated with SDVOSB though I assume a similar designation applies to the new entity or even the flows to it via the ownership structure (though that's all speculative).

Just my 2 cents... though like everything I'm sure "it depends" - I hope others can shed some light on the alternative.

Reply by a searcher
from Binghamton University, State University of New York in New York, NY, USA

Really depends on your objectives, If the target is an LLC, then it can be acquired and held as a pass-thru subsidiary. Alternatively, the target LLC can be merged with the LLC acquirer with the acquirer as the surviving entity. Best to get good legal and CPA advice. Another approach has already been mentioned, form a newco and the members contribute their interests for a pro-rata interest in the holdco. members of LLC then own the same amount of equity in the holdco as they did in the LLC. Holdco now owns LLC 100% as a pass-thru entity. Then holdco then acquires target and target becomes a 2nd pass-thru entity owned by holdco. Short version - there's options - just need to figure which structure suits your particular needs.

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