Henri and Simone started Manx Corporation in 2002 with each investing $500,000. Manx develops and manufactures pet toys and supplies. The business has been very profitable (now valued at $5 million) due to Henri’s marketing abilities and Simone’s knack for inventing toys that pets love. Since Henri and Simone feel that Manx cannot expand further in the pet product industry, they are in the market to acquire another company. Henri hears about LaPerm Corporation from one of their customers. LaPerm is a beauty supply manufacturer. It has a great line of products but has suffered substantial losses due to a lack of strategic marketing and ineffective management. It is a small company with net assets valued at $200,000, but it has a $300,000 NOL and a $100,000 business credit carryover. All the shares of LaPerm are held by Marcel, who started LaPerm 40 years ago. Marcel is 66 and is no longer interested in running the business. Before Henri and Simone enter into negotiations with Marcel regarding the acquisition of LaPerm using a tax-deferred reorganization, what issues should be considered?
Click here for the solution: Henri and Simone started Manx Corporation in 2002 with each investing $500,000
