Finding Creative Solutions for Unique Acquisitions

Our Taxation Group primarily supports the firm’s Business and Finance, Real Estate, and Litigation groups by advising them on the most advantageous tax structures for transactions and settlements. In the matters described below, John Schapiro, a partner in the Tax practice, leverages his previous experience as a corporate attorney and familiarity with both the tax and non-tax elements of mergers, acquisitions, and other common business transactions to help meet the client’s needs.

Business and Finance partner Michael Frattone represents Community Veterinary Partners, LLC (CVP), a private equity partnership engaged in strategic consolidation of veterinary clinics. Typically, some or all of the veterinarians working at a clinic will remain minority partners of the clinic after its acquisition by CVP. Each of these transactions is relatively small, but requires unique structuring to minimize the tax bite a veterinarian/owner may suffer when he or she sells part, but not all, of an ongoing clinic. Structures may differ depending on the clinic’s existing entity form, the number of veterinarian/owners, and the percentage of them who will retain an interest in the clinic after CVP’s purchase. Frattone and Schapiro harmonize those issues with other goals, such as obtaining the best tax results for CVP, protecting against unanticipated liabilities of the purchased clinic, and reducing or eliminating state tax exposure for the transaction.

In a recent acquisition of a veterinary clinic in the Mid-Atlantic region, the selling entity was an S-corporation, with a single shareholder. The parties had agreed that the selling shareholder would roll over a portion of the purchase price to be received in the sale in exchange for a 20% ownership interest in the LLC that was acquiring the veterinary clinic. In order to achieve tax deferral for the selling shareholder with respect to the equity interest she was receiving in the buyer, Schapiro devised a structure whereby prior to closing, the selling S-corporation would form a new limited liability company and contribute all of its assets to the new entity, in exchange for 100% of its membership interests. At closing, the selling S-corporation sold 80% of the membership interests in the new company to the purchaser, and continued to hold the remaining 20%, thus ensuring tax deferral treatment on the value of the 20% interest for the selling shareholder.