What are the reverse merger, forward merger and subsidiary merger?


The reverse merger, forward merger and subsidiary merger are explained below along with their advantages and disadvantages.

Reverse merger

In reverse merger,

  • A private firm becomes a public company.
  • A smaller company obtains a bigger company.
  • Parent company mergers with its subsidiary.
  • Company in losses obtains the company in profits.

Advantages

The advantages of reverse merger are as follows −

  • Private firm become public company without IPO
  • Tax benefits

Disadvantages

The disadvantages of reverse merger are as follows −

  • Shareholders value remains the same.
  • Can/sometimes lead to operations inefficiency.

Forward merger

Forward merger is also called direct merger. In this, two companies are combined directly to form a single company under the name of the acquired company.

Acquired company accepts all the assets and liabilities of other company

Advantages

The advantages of forward merger are as follows −

  • Easy to integrate.
  • Continuity of acquired business.

Disadvantages

The disadvantages of forward merger are as follows −

  • No legal protection.
  • Time taking.

Subsidiary merger

In a subsidiary merger, the company acquires another through its subsidiary/subsidiaries.

In this, a new subsidiary is created or the company uses an already existing one/ones.

Advantages

The advantages of subsidiary merger are as follows −

  • Tax benefits.
  • Loss is limited.

Disadvantages

The disadvantages of subsidiary merger are as follows −

  • More legal work.
  • Merging financial statements.

Updated on: 13-Jul-2021

258 Views

Kickstart Your Career

Get certified by completing the course

Get Started
Advertisements