Preliminary Considerations With Fiduciary, Corporate, Securities And Regulatory Law

In this paper, we are examining the 1998 DuPont spin off of Conoco by analyzing the transaction itself. Then, I look at one of the possible alternatives to the chosen transaction and compare that alternative with the actual long term impacts of the sale. I will then decide and recommend which option would have been the best utilized by DuPont over the long-term in order to generate the most revenue from its ownership of Conoco.

With respect to any items of shared income (including with respect to jointly owned, income generating assets) or expenses (including with respect to jointly used services or property), the parties must apportion income, loss and expenses for the entire taxable period using some reasonable method of apportionment, including time of receipt, time of payment, degree of usage, relative period of ownership by Parent of Spinoff Sub during the applicable taxable period or some other basis permitted under applicable tax regulations.

Potentially two layers of Tax: Corporate layer – Target recognizes a taxable gain or loss on the sale of assets. Shareholder layer – Selling shareholders recognize a gain taxed as ordinary income if the target liquidates equal to the after-tax liquidating dividend less shareholders’ basis in the stock. The acquirer assumes a stepped-up (FV) basis in the target’s net assets. The acquirer allocates the purchase price to the acquired assets and liabilities for tax purposes in the same manner as it does for accounting purposes. The depreciation and amortization of all asset write-ups and intangibles recognized in the transaction, including goodwill, are tax-deductible. The target’s tax attributes, such as non-operating losses (NOLs), may be used immediately to offset the target’s taxable gain. Any remaining tax attributes are lost if the target liquidates. An acquisition of a freestanding C corporation will usually be structured as a purchase of stock because an asset purchase usually results in double taxation (i.e. the seller is taxed on the sale of assets, and the seller’s shareholders are taxed on any after-tax proceeds from the sale distributed by the seller).

As we learned last week in Chapter 14, a taxpayer does not recognize a gain or loss on the transfer of property to a corporation as long as the transferors have control* of the corporation immediately following the exchange (IRC 351). The taxpayer can transfer virtually any type of property, including cash, inventory, intellectual property (such as a patent), or a building. It’s important, upon corporate formation, that accurate records are kept on what property was used to form the corporation and what its value is. This information is used to establish the shareholder’s basis in the stock as well as the corporation’s basis in the assets contributed, which has particular importance in a corporate liquidation. In theory, the value of the assets contributed will be equal to the value of the corporate stock received;

“Tax-free” M&A transactions are considered “reorganizations” and are similar to taxable transactions except that in reorganizations the acquirer uses its stock as a significant portion of the consideration paid to the seller rather than cash or debt. Four conditions must be met to qualify a transaction for tax-free treatment under IRC Section 368: 1) Continuity of ownership interest – at least 50% of the consideration is acquired stock (although transactions with as little as 40% stock consideration have qualified for tax-free treatment); 2) Continuity of business enterprise – the acquirer must either continue the target’s historical business or use a significant portion of the target’s assets in an existing business for 2 years after the transaction; 3) Valid business purpose – the transaction must serve a valid business purpose beyond tax avoidance; 4) step-transaction doctrine – the transaction cannot be part of a larger plan that, taken in its entirety, would constitute a taxable acquisition.

Mimi’s continued involvement in the business is simple as she can maintain ownership and freely transfer assets; however, it is imperative that Mimi derives a Last and Will and Testament or a Shareholder’s Agreement to explicitly detail Mimi’s transferability of shares in Mimi’s Cupcakes Inc. Other concerns to discuss is the dissolution and liquidation of the corporation and the tax implication on the shareholders; for example, the dissolution of the corporation requires to file a notice of dissolution with the state. The assets of the corporation are liquidated by selling all its assets to the shareholders based upon liquid their shares of stock. Shareholders are required to recognize a gain or loss according to Section 336 on property

Selling the business assets (including goodwill) – as opposed to the stock or partnership interests – raises special tax concerns for the seller. This is often the best structure for the buyer. Generally, if a sole proprietor, S corporation (which was never a C corporation before election), or partnership (multimember LLC/LLP) sells assets the income or loss passes directly to the seller shareholder/partner without two levels of taxation unlike a regular C corporation or an S corporation that was previously a C corporation which subsequently elected S status. Generally, these entities will have two levels of tax on the asset sale and subsequent liquidation of the entity. The seller’s goal is to achieve a single level of tax, which would be the result if an individual sold the assets of a sole proprietorship, or other flow through entity.

Generally, purchasers can acquire another business through either an asset sale or stock sale. Since sales tax is maybe imposed on the sale of tangible personal property, the acquisition of a business enterprise through a stock sale generally will not be subject to sale tax. For other good and valid reasons, however, purchasers may want to structure the acquisition of the business as an asset sale. These asset sales, where all or part of the business’s assets are transferred, are commonly referred to as bulk sales for sales tax purposes. Since these asset sales or bulk sales constitute, at least in part, the sale of tangible personal property, they will be subject to sales tax unless a specific exemption applies. A common exemption available to purchasers for asset sales is the “occasional, casual or isolated sale” (“occasional sale”) exemption. An occasional sale exemption generally will exempt the acquisition of assets that are sold in bulk or otherwise outside of the ordinary course of business. Most states provide such an exemption, although the scope of the exemption varies among states. Many states also specifically exclude the transfer of inventory from the occasional sale exemption since the transfer of these items is within the ordinary course of business. A purchaser may avoid the imposition of sales tax on inventory, however, by providing a resale exemption certificate to the seller at the time of purchase. Many states require one

Transfer of partial ownership of the asset to both children is a form of a gift. The strategy is beneficial as it first reduces the size of an estate subject to estate tax. As such, there will be savings in both federal state taxes and probate expenses. The transfer of property shifts the tax burden from the business holder who is in a higher tax bracket to the children who are in a lower tax bracket. The differences

The purpose is the sale-off or dissolution of whole business units, or

announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core

This document will serve to demonstrate the options which are available for clients who are wishing to arrange strategies to mitigate and / or pay for inheritance tax (IHT) liabilities.

Internal Revenue Code (IRC) Section 368 contains the provisions for tax free reorganizations which defer the gain recognition in specified corporate acquisitions. Partnerships generally do not fall under these provisions. Generally, only the first three types or a variation of them are used in most acquisitions. Reorganizations are very complex with detailed rules to adhere to that ensures their tax free treatment. The items below address some not all of the basics for certain reorganizations.

The purpose of this research paper is to examine the impact to the company’s bottom line of divesting AOL from Time Warner and of selling the AOL Europe holdings. The conversant Time Warner merged with AOL in 2001. This produced a loss in value to both entities. Since the merger, Time Warner has looked at ways to either increase its overall revenue through divesting units or portions of the conglomerate by acquiring other companies to help increase earnings potential. This paper looks at the impact to Time Warner if it divests its AOL unit and also what would be the best way to proceed with selling its AOL Europe holdings. This paper will take a historic perspective on memo 8 and memo 10 on this case study.

Businesses wishing to 'streamline' their operations often sell less productive, or unrelated subsidiary businesses as spinoffs. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business.