The information presented is only of a general nature, intended simply as background material, is current only as of the latest revision date, October 15, 2007, omits many details and special rules and cannot be regarded as legal or tax advice.

Internal Revenue Code § 368(a)(1)(B)

In a B reorganization, the acquiring corporation ("Acquiring") acquires stock of the target corporation ("Target") directly from the Target shareholders solely in exchange for voting stock of Acquiring.

B Reorganization Diagram

Post-Transaction Structure

Target shareholders can exchange their Target stock only for Acquiring voting stock.

Acquiring must control Target after the exchange. Note that the Target shareholders need not surrender control in the exchange (as is the case in a reverse triangular merger); thus, creeping acquisitions are possible but raise the possibility that prior purchases of Target stock for cash by Acquiring will be integrated under the step transaction doctrine with the stock-for-stock exchange, causing the overall transaction to violate the solely for voting stock requirement.

In a triangular B reorganization, stock of a corporation ("Parent") in control of Acquiring can instead be transferred to the Target shareholders as consideration for their transfer of Target stock to Acquiring (provided the other B reorganization requirements are satisfied), but a combination of Parent and Acquiring voting stock is not permitted.

Triangular B Reorganzation Diagram

Post-Transaction Structure

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