Question

39. Identify which of the following statements is false.

A) In a Type C reorganization, the acquired corporation must distribute stock, securities, and other property it receives to its shareholders.

B) A Type C reorganization is less flexible than a Type A reorganization because of the solely-for-voting stock requirement of a Type C.

C) To qualify as a Type C reorganization, the target corporation must be formally dissolved.

D) In a Type C reorganization, shareholders of the acquiring corporation generally do not have to approve the acquisition.

Answer 1

Correct Answer is Option C.

The target corporation must not be formally dissolved to get qualified as a Type C reorganisation.

Some information about Type C reorganisation is below:

A Type “C” acquisition is the transfer of the assets of the seller to the acquirer in exchange for the voting stock of the acquirer. This acquisition has the following characteristics:

• The acquirer must buy at least 80% of the fair market value of the acquiree’s assets

• The acquirer can use cash only if it uses its voting stock to buy at least 80% of the fair market value of the acquiree’s assets

• The selling entity must be liquidated

• It must meet the bona fide purpose rule

• It must meet the continuity of business enterprise rule

• It must meet the continuity of interest rule

• The acquirer may not have to gain the approval of its shareholders for the transaction, since this is an asset purchase. The acquired entity must gain the approval of its shareholders for the transaction.

Thank you.