Company Acquisitions The Disadvantages
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Continuing on from our last article 'A Guide to Company Acquisitions', we continue to talk about acquiring a business through purchasing shares. We mentioned in our previous article that there are several reasons why companies seek out acquisitions, including gaining access to new business or technology and the benefits. This time however we talk about the disadvantages and complications that are associated with an acquisition of shareholdings.
Liabilities
When attempting to obtain a current or target business through an acquisition of shares then the buyer also has, in some cases, the misfortune of inheriting all of the target businesses liabilities and contractual agreements that are in place.
Pre-sale re-organisations
A pre sale reorganisation is when a business is purchased through an acquisition of shares and some of the assets of the purchased business are not included in the sale. When this occurs, the purchaser is required to then strip out these assets before the acquisition is completed. This is generally regarded as complicated process.
Tax disadvantage
Capital allowances are not available on shares during a share acquisition. The share purchaser usually acquires the assets of the selling company with a 'base cost' for capital gains tax purposes, this is equal to the price paid and capital allowances can be obtained for qualifying assets. Furthermore the companies taxable assets are based on historic data, any differences are seen in the deferred tax liability provision.
Financial Assistance
You will not be eligible for any financial help from the company whose shares you are trying to acquire. The companies act of 1985 prohibits a company purchasing a target company through a share acquisition from receiving any financing help from the company they are purchasing in the form of a loan.
Transfer restrictions
There maybe some restrictions that applies during the acquisition to the transfer of the target company's articles of association or other outstanding contractual obligations that are in place which may then lead to complications with the acquisition of shares.
Article Source: Articlelogy.com
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