California corporations that are considering acquisitions and mergers need to take care that they avoid violating the IRS regulations that cracked down on corporate inversions. This may require adjusting the ownership percentages so that the acquisition or merger will not effectively be an inversion.
A corporate inversion occurs when a corporation moves its legal domicile to an overseas location that has lower taxes while maintaining most of its business in the U.S. Under the Obama administration, regulations were passed providing penalties for stripping taxes away from the U.S. The anti-inversion rules have caused a new calculus for companies when they are trying to determine whether or not to move forward with a merger or acquisition of a cross-border company.
Inversions may also cause the shareholders to face capital gains taxes. If the shareholders of the acquired company will own more than 50 percent of the shares of the newly formed corporation, they may be taxed on their capital gains when they exchange the old stock for the new stock. Companies that are found to have violated the anti-inversion regulations may also face substantial fines and penalties.
Mergers and acquisitions are highly complex and heavily regulated. Corporations that are considering acquiring companies or merging with them may need to seek guidance from experienced corporate law attorneys. The lawyers may help their clients to conduct due diligence in order to make certain that the merger or acquisition will make sense. They may also help to structure the deals in such a way as to avoid potential penalties. The attorneys may help their clients with any required regulatory filings and with keeping in compliance with the applicable federal and state laws.