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Rollover Equity Transactions: Business & Tax Planning Fundamentals

Rollover Equity Transactions: Business & Tax Planning Fundamentals

During the past decade, financial buyers such as private equity firms (PE firms) have dramatically increased their participation in the M&A marketplace. PE firms and other financial buyers generally acquire companies with the intention of holding them for a three to seven-year period and then (hopefully) selling their "portfolio company" for a profit. Most PE firms look for target companies with strong management teams. PE firms also often encourage a target company's equity owners (referred to in this article as "founders") to "roll over" a portion of their equity, so that the founders own a minority equity position in the target company or its holding company after the transaction closes.

Click here to view this article in its entirety and learn more about:

  • What is driving the popularity of rollover transactions?
  • How rollover transactions are structured
  • Succession planning for business owners
  • Viewing rollover equity as a minority investment by the founder
  • Founders should undertake their own due diligence investigation of potential buyers
  • The financial aspects of rollover equity
  • Vesting of rollover equity
  • Typical minority ownership issues confronting founders
  • Structuring a rollover transaction from a tax standpoint
  • Structuring taxable rollover transactions
  • Structuring tax-free equity rollovers
  • Purchasing less than 100% of the target company's equity
  • The holding company formation transaction structure
  • The LLC "drop-down" transaction structure
  • Tax-Free Reorganizations
  • Avoiding tax traps
  • The use of "contribution agreements" in tax-free rollover transactions
  • Earn-out arrangements
  • Incentive equity pools
  • Legal representation and disclosure issues

For more information, please contact Scott Dolson or any other Frost Brown Todd LLC transaction attorney, or a Frost Brown Todd tax attorney for Tax Law Defined™ with respect to the tax aspects of the equity rollover.

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Attorney Spotlight

Carl C. Lammers is a member of FBT, counseling employers on the design and administration of employee benefit plans, including defined contribution and defined benefit pension plans, ESOPs, and health and welfare benefit plans.