What are the main 3 transaction structures you could use to acquire another company?

Stock Purchase, Asset Purchase, and 338(h)(10) Election. The basic differences:

Stock Purchase:

• Buyer acquires all asset and liabilities of the seller as well as off-balance sheet items.

• The seller is taxed at the capital gains tax rate.

• The buyer receives no step-up tax basis for the newly acquired assets, and it can’t depreciate/amortize them for tax purposes.

• A Deferred Tax Liability gets created as a result of the above.

• Most common for public companies and larger private companies.

Asset Purchase:

• Buyer acquires only certain assets and assumes only certain liabilities of the seller and gets nothing else.

• Seller is taxed on the amount its assets have appreciated (what the buyer is paying for each one minus its book value) and also pays a capital gains tax on the proceeds.

• The buyer receives a step-up tax basis for the newly acquired assets, and it can depreciate/amortize them for tax purposes.

• No Deferred Tax Liability is created as a result of the above.

• Most common for private companies, divestitures, and distressed public companies. 

Section 338(h)(10) Election:

• Buyer acquires all assets and liabilities of the seller as well as off-balance sheet items.

• Seller is taxed on the amount its assets have appreciated (what the buyer is paying for each one minus its book value) and also pays a capital gains tax on the proceeds.

• The buyer receives a step-up tax basis for the newly acquired assets, and it can depreciate/amortize them for tax purposes.

• No Deferred Tax Liability is created as a result of the above.

• Most common for private companies, divestitures, and distressed public companies.

• To compensate for the buyer’s favorable tax treatment, the buyer usually agrees to pay more than it would in an Asset Purchase.