DEFINITION of 'Continuity Of Business Enterprise Doctrine'

A taxation principle applicable to corporate mergers and acquisitions. The doctrine holds that, in order to qualify as a tax-free reorganization, the acquiring entity must either continue the target company's historic business or should use a substantial portion of the target's business assets in a business.

BREAKING DOWN 'Continuity Of Business Enterprise Doctrine'

The continuity of business enterprise doctrine applies only to the business and business assets of the target company, and not to the acquiring company. Therefore, in a situation where most of the assets of a company are sought to be disposed of, one way of ensuring compliance with the continuity doctrine is by making this company the acquirer rather than the target. This is a technique that has been approved by the IRS.

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