THE ADVANCED GUIDE TO

MERGERS & ACQUISITIONS

COURS
E
 SECTION 2
The Life (and Death?) of a U.S.
LECTURE
1
Public
LECTURE Company
LECTURE LECTURE
2 3 4
The Birth of a
Business: The Birth of a
Business: The Birth of a Public vs.
Taxation, Business: C Private
Organizational
Liability & Forms Corporations
LECTURE Companies
Delaware
LECTURE LECTURE
6 7
5
Capital The Death (?)
Going Public! Structures of a Business
DISCUSSION QUESTIONS

BUSINESS
ORGANIZA
TION
BUSINESS ORGANIZATION
AND M&A
When planning an M&A
transaction, it is important to know
the organizational forms of the
parties and their advantages and
disadvantages.
 BUSINESS ORGANIZATION
AND M&A
In addition, as we will discuss in
Section 4, an Acquiror will often
organize a wholly-owned subsidiary as
part of an M&A transaction, so it must
be aware of the advantages and
disadvantages of each organizational
form.
DISCUSSION QUESTIONS

TYPES OF
BUSINESS
ORGANIZATIO
OVERVI
EW
 KEY BUSINESS
ORGANIZATIONAL FORMS
1.Sole Proprietorship *
2.Partnership (General and
Limited)
3.Limited Liability Company
4.S Corporation
5.C Corporation
 SOLE
PROPRIETO
RSHIP
 SOLE
PROPRIETORSHIP
• A business owned & operated
by one individual.
• Simplest business form and
most common form in the U.S.
• NOT a legal entity – the term
“Sole Proprietorship” refers to
the person who owns the
business and is responsible for
its debts; it is not a legal term.
SOLE PROPRIETORSHIP
• Forming a Sole Proprietorship
requires no paperwork, no filings
with the state, etc.
• Holding yourself out as carrying on
a business is all that’s required.
SOLE PROPRIETORSHIP
DISADVANTAGE
S
ADVANTAGES • No Limited
Liability
• Pass-Through
taxation
PARTNER
SHIP
PARTNERSHIPS
Starting and
running a business
can be extremely
challenging.
 WHY A PARTNERSHIP?
Having a partner can be
a great way to lessen the
burden while potentially
adding value to the
business through the
partner’s expertise,
 SOME TERMINOLOGY
• A Partnership is an association of 2+
persons who carry on as co-owners of a
business for profit.
• Two types – Limited Partnership (LP)
and General Partnership (GP).
• Owners of an LP are Limited Partners
and owners of a GP are General
 WHY A
PARTNERSHIP?
A Partnership offers Pass-
Through tax treatment.
PARTNERSHI
PS
Liability is a little more
complicated…
GENERAL PARTNERSHIP
(GP)
• Ownership  An LP needs at least
one of its owners to be a GP and at
least one to be a Limited Partner.
 GP
Management:
• The GP actively manages the LP, so it
has unlimited liability.
• The LP is passive – it is not involved in
the management of the LP, so it has
Limited Liability.
 GP
A GP has the authority to act on
behalf of the business without
the knowledge or permission of
the passive Limited Partner(s).
 LP
DISADVANTAGES
ADVANTAGES
• Limited Partners
• Pass-Through tax cannot take active role
treatment in managing the LP
• Limited Liability • Difficult to raise large
amounts of capital
 GP
DISADVANTAGES
ADVANTAGES • No Limited Liability
• Pass-Through tax
• Difficult to raise
treatment
large amounts of
• May be actively capital.
involved in managing
the LP
LIMITE
D
LIABILI
TY
COMPA
LIMITED LIABILITY
• LLCs are hybrid entities
COMPANY (LLC)
that combine the Limited
Liability of a C Corp with
the Pass-Through tax
treatment of an LP.
• Ownership of an LLC is
represented by Membership
Interests and the owners
are Members.
 LLC
DISADVANTAGES
ADVANTAGES
• Difficult to raise
• Pass-Through tax
large amounts of
treatment capital
• Limited Liability
 S
CORPORA
TION
S CORPORATION (S
CORP)
An S Corp is any C Corp

S
that makes an election on
its federal income tax form
to be taxed under
Subchapter S of the
Internal Revenue Code
(IRC).
 S CORP
• An S Corp is a federal tax status,
not a type of legal business entity.
• S Corps are Pass-Through
entities, so no double taxation.
• An S Corp also provides Limited
Liability.
 S CORP:
REQUIREMENTS
• To qualify for S Corp status, a
business must:

Be a U.S. business.

Have no more than 100 shareholders.

Have only one class of stock.

Be a U.S. C Corp or S Corp.

Have only “allowable shareholders”
 S CORP
• S Corps are Pass-Through entities, so
their owners report the S Corps’
income/losses on their personal tax
returns and pay tax at their individual
income tax rates.
• This allows S Corps to avoid double
taxation.
 S CORP
DISADVANTAGES
ADVANTAGES • Multiple requirements
• Pass-Through taxation must be met
• Limited Liability • Difficult to raise
capital with 100 or
fewer shareholders
• Owners must be U.S.
citizens
 NEXT
DISCUSSION QUESTIONS

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