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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.
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.
The advantages of reverse merger are as follows −
- Private firm become public company without IPO
- Tax benefits
The disadvantages of reverse merger are as follows −
- Shareholders value remains the same.
- Can/sometimes lead to operations inefficiency.
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
The advantages of forward merger are as follows −
- Easy to integrate.
- Continuity of acquired business.
The disadvantages of forward merger are as follows −
- No legal protection.
- Time taking.
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.
The advantages of subsidiary merger are as follows −
- Tax benefits.
- Loss is limited.
The disadvantages of subsidiary merger are as follows −
- More legal work.
- Merging financial statements.
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