Reverse Triangular Merger

DEFINITION of 'Reverse Triangular Merger'

The formation of a new company that occurs when an acquiring company creates a subsidiary, the subsidiary purchases the target company and the subsidiary is then absorbed by the target company. A reverse triangular merger is considered to be simpler to accomplish than a direct merger because the subsidiary only has one shareholder - the acquiring company. Another advantage of a reverse triangular merger is that the acquiring company is able to obtain control of the target's non-transferable assets and contracts. This is not always possible with a forward triangular merger.

BREAKING DOWN 'Reverse Triangular Merger'

Reverse triangular mergers, like direct mergers and forward triangular mergers, can be either taxable or nontaxable depending on how they are executed and other complex factors set forth in Section 368 of the Internal Revenue Code. If nontaxable, a reverse triangular merger is considered a reorganization for tax purposes.

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