Proposed change to continuity-of-shareholder-interest requirement in acquisitive reorganizations.

• Jurisdiction: United States
• Author: Luchs, Lorin D.
• Date: 01 May 1997

Continuity of shareholder interest, along with continuity of business enterprise and business purpose, are the three judicial requirements for tax-free acquisitive and divisive reorganizations under Sec. 368. In an acquisitive reorganization, the continuity-of-shareholder-interest principle requires that (1) the historic shareholders of the acquired corporation receive in the acquisition a (2) sufficient (3) equity interest of the acquiring corporation (or a corporation in "control" of the acquiring corporation) with (4) no immediate plan or intention of disposing of the stock received. There are numerous cases, rulings, regulations and procedures describing and explaining these four elements.

Pre-Reorganization and Post-Reorganization Continuity

Because of their very subjective and factual nature, the first (pre-reorganization continuity) and fourth (post-reorganization continuity) elements have...