See: Morris Trust.
You own a massive frozen seafood business. You want to sell your lobster tail factory to Crustacean Town, Inc. One problem...the deal will end in a large tax bill that you don't want to pay.
The solution: a Reverse Morris Trust. It's a strategy for running an asset sale that avoids taxes.
There are basically three steps. First, you break off your asset into a separate subsidiary. (You create a shell company and move ownership of your lobster factory there.) Then that entity is merged into the buyer. (Lobster Factory Ltd. gets merged with Crustacean Town, Inc.; the new company is renamed Crustacean Nation Corp.) Finally, shares of the resulting combined company are issued to your shareholders. You are left with two separate companies at the end. Your shareholders still own your company, plus at least 50% of the merged company created by the buyer and the asset you sold them. (So you and your fellow shareholders still own 100% of the slightly smaller seafood business, plus 50.1% of Crustacean Nation Corp.)
You aren't selling the asset directly. So as long as all the requirements of a Reverse Morris Trust are met (the key being the ownership structure at the end), you don't incur any taxes related to the sale.
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Finance: What is an Asset Backed Securit...7 Views
Finance Allah Shmoop what is an asset backed security Well
if you haven't seen our M night channel on directed
video on Collateral you should It won the Academy Award
for best finance video frequently confused with a Tom Cruise
action flick Riveting stuff So why would you see this
or other videos while other than to see Cem truly
groundbreaking CG effects like this Because assets backing a security
our collateral that is the asset itself is the guarantee
that bond holders get if the money isn't paid back
or said differently The bonds borrowed against the assets function
as the collateral in the loan funding whatever a B
s security is being offered You have an airplane or
actually one hundred of them together they're worth two billion
box bonds were issued to buy them two billion bucks
worth of bonds BBB The planes are going to be
incorporated into SHMOOP West Airlines flight schedule Only problem Shmoop
West doesn't have the collateral or the cash Ola to
just you know by them But shmoop West Air can
lease them or pay interest on them for the privilege
of using them And that's a good thing because well
eBay airlines just happens to own a bunch of used
airplanes So what happens then Well the owner of the
airplanes pledges them as collateral and raises cash ola money
in the form of bonds by borrowing against the assets
of the airplane The asset of the airplane is the
guarantee that backs the bond Should something up you know
go awry So uh yeah On behalf of everyone here
it's shmoop West Air We'd like to wish you a
safe ish flight Peanuts
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