Tax Provision Negotiation in a Stock Purchase Agreement (C Corporation Target)

Summary

This practice note provides an overview of considerations for an M&A practitioner when drafting or negotiating a stock purchase agreement. In a stock purchase transaction, the outstanding stock of the target company is transferred to the purchaser directly by the target's stockholders. A stock purchase agreement is the primary agreement governing the transaction. It is essential to thoroughly identify any open or unresolved tax issues and confirm tax filings were timely satisfied by the target business because the target company generally retains its preclosing liabilities after the acquisition, so any such issues or liabilities will become the responsibility of the buyer after closing.