An acquisition structure may be structured in one of three ways: (A) stock or equity purchase, (B) asset sale, and (iii) merger. The acquirer and target have competing economic, legal interests and tax considerations within each structure.

In a merger, two separate legal entities become one surviving entity. Upon closing of a typical stock of equity acquisition, the acquirer (either directly or through a new entity) acquires all of the target’s assets, liabilities, and debt by operation of state corporate law.

FORWARD TRIANGULAR MERGER – Buyers may wish to keep the target company as a separate legal entity for liability reasons, so the acquiring company will instead merge the target into a wholly-owned subsidiary or shell company created by the acquirer. This structure is defined as a Forward Triangular Merger. When complete, the subsidiary survives the merger, holding all of the assets and liabilities of the target company.

REVERSE TRIANGULAR MERGER – In a reverse triangular merger, a subsidiary of the acquirer is merged into the target, leaving the target as the surviving entity and a subsidiary of the acquirer and eliminating any minority shareholders in the target. This structure allows the acquirer to protect itself from the target’s liabilities, as in the forward triangular merger, but with the added benefit that non-assignable assets and contracts are not lost. However, at least 80% of the consideration must be paid in voting common or preferred stock of the acquirer.