Series 79: 11.2.5. Identifying Corporate Issues

11.2.5. Identifying Corporate Issues

The adviser and seller should also attempt to identify any corporate issues that may need to be dealt with in structuring the transaction. Such issues can take many forms, but a common area of concern is the effect of any required golden parachute payments. A golden parachute is a large payment payable to a key corporate executive upon a change in control of the corporation. Since a merger or acquisition results in a change of control, it would trigger—or pull the ripcord on—any golden parachute arrangement.

A golden parachute can create problems for a proposed transaction in two ways. First, the resulting obligation to pay usually falls to the buyer; if the payment is large enough to have a material effect on the transaction terms, it may affect the buyer’s willingness or ability to complete the deal. Second, there can be significant tax consequences as