Reverse Morris Trust

See: Morris Trust.

You own a massive frozen seafood business. You want to sell your lobster tail factory to Crustacean Town, Inc. One problem...the deal will end in a large tax bill that you don't want to pay.

The solution: a Reverse Morris Trust. It's a strategy for running an asset sale that avoids taxes.

There are basically three steps. First, you break off your asset into a separate subsidiary. (You create a shell company and move ownership of your lobster factory there.) Then that entity is merged into the buyer. (Lobster Factory Ltd. gets merged with Crustacean Town, Inc.; the new company is renamed Crustacean Nation Corp.) Finally, shares of the resulting combined company are issued to your shareholders. You are left with two separate companies at the end. Your shareholders still own your company, plus at least 50% of the merged company created by the buyer and the asset you sold them. (So you and your fellow shareholders still own 100% of the slightly smaller seafood business, plus 50.1% of Crustacean Nation Corp.)

You aren't selling the asset directly. So as long as all the requirements of a Reverse Morris Trust are met (the key being the ownership structure at the end), you don't incur any taxes related to the sale.