Forward Triangular Merger - Explained
What is a Forward Triangular Merger?
Written by Jason Gordon
Updated at April 16th, 2022
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
Table of Contents
What is a Forward Triangular Merger?How does a Forward Triangular Merger Work? Reasons for a forward triangular mergerAcademic Research on Forward Triangular MergerWhat is a Forward Triangular Merger?
A forward triangular merger, also known as indirect merger, takes place when a subsidiary of the purchasing organization acquires a business firm. The company that undergoes acquisition merges into the shell firm that has control over all assets and liabilities of the target firm.
Back To: BUSINESS LAW
How does a Forward Triangular Merger Work?
Forward triangular merger, similar to reverse triangular merger, involves the merger in which the subsidiary of the purchaser gets merged into the target firm. This helps the buyer in getting secured from the liabilities of the target firm.
This is so because the target firm ultimately becomes the buyers completely owned subsidiary irrespective of it being a forward triangular merger or reverse triangular merger. In the United States, forward triangular mergers get taxed just like the target firm makes the sale of its assets to the subsidiary firm, and then liquidated its operations. On the other side, a reverse triangular merger gets taxed as if the shareholders of the target firm made the selling of their stock to the purchaser.
Reasons for a forward triangular merger
Forward triangular mergers usually take place when the company's operations are financed by an amalgam of cash and stock. This is so because mergers that compensate target shareholders with a minimum of 50% in shares of the buying firm don't charge any taxes. For avoiding any tax liabilities on the merger, they are hardly used in bids that require cash alone.
Considering non-tax issues, forward triangular mergers appear to be less supportive than reverse triangular mergers. They have a huge effect on the licenses and agreements of the target firm as third parties can retain the possession of contracts and assignments from the acquirer, and may ask for a compensation to give consent or permission to them. A forward triangular merger has to be authentic and legal, provided the business objective and persistent interest needs to be sustained within the acquiring firm.
Back to: Business Transactions
