C Corporation Stock Acquisition Tax Issues

Summary

This practice note provides guidance on the tax considerations when planning and negotiating the acquisition of a C corporation; it includes discussion of cash and stock-for-stock transactions, taxable and tax-free transactions, and public and private transactions. Taxes can be the greatest cost when buying or selling a C corporation. Buyer effectively inherits the tax liability of the former owner's business, since this liability is housed within the C corporation and may not have been taken into account when the parties negotiated the purchase price. On the other side of the table, seller can pay significant federal, state, and local taxes on any gain from the sale of C corporation stock, so any additional tax cost can be unexpected and unwelcome. When representing either a buyer or seller in the sale of C corporation stock the various tax issues in the stock purchase agreement should be considered and negotiated with the goal of ensuring that the provisions at best work in favor of,...