A corporate reorganization is any change to a company’s internal operating structure that aims to improve efficiency, increase revenues, decrease costs, or achieve any combination of these objectives.
Under Section 368 of the Internal Revenue Code (IRC), there are seven different types of corporate reorganizations. The seven types of reorganizations are the following:
- Type A Reorganization: Merger and Consolidation. Section 368(a)(1)(A)
- Type B Reorganization: Acquisition of Subsidiary. Section 368(a)(1)(B)
- Type C Reorganization: Acquisition with Target Liquidation. Section 368(a)(1)(C)
- Type D Reorganization: Transfers. Section 368(a)(1)(D)
- Type E Reorganization: Recapitalization. Section 368(a)(1)(E)
- Type F Reorganization: Identity Change. Section 368(a)(1)(F)
- Type G Reorganization: Transfer of Assets. Section 368(a)(1)(G)
Type B Reorganizations under Section 368(a)(1)(B)
A Type B reorganization is the acquisition of stock of a corporation in exchange solely for stock in either the acquiring corporation or the acquiring corporation’s parent company.
Example Type B Reorganization
John Smith owns 100% of Smith Corporation and wants to sell his company to Target Company. Target Company proposes a Type B reorganization.
John Smith transfers 100% of his shares of Smith Corporation to Target Company. Rather than receive cash for selling his company, Target Company gives John stock in Target Company.
After the close of the transaction, John became a shareholder in Target Company. Target Company now owns 100% of the stock of Smith Corporation.