QuestionsHow should these various contributions be recorded? Are these transactions between entities under common control? If under common control, is there a change in control?We are looking at t
TAMUCT Accounting 5365
Business Combinations
Case from - Brandon Haines, Meyners + Company
Facts
ABCE is owned by three individuals (“A” with 70% interest, “B” with 26% interest and “C” with 4% interest).
The stockholders of ABCE are proposing the creation of a new limited liability company, ABC Holdings LLC (Holdings).
ABCE will contribute its 100% wholly owned subsidiaries - ABC Services, LLC (ABCS), ABC Leasing, LLC (ABCL) and XX Daisy Logistics, LLC (XX Daisy) to Holdings.
Two of the stockholders (“A” & “B”) intend to contribute their interest in ABC Moving LP (ABC LP) and ABC Moving Management LLC (ABC Mgmt) to Holdings. ABC LP owns the property that ABCL, ABCS and XX Daisy lease for their facilities. In 2005 and 2006 this entity was consolidated with ABCE under FIN46(R) Consolidation of Variable Interest Entities.
One stockholder (“A”) intends to contribute his 100% interest in a newly formed LLC which will own real estate (HHH Property) and associated debt. It is the intention of ABCE to eventually build a facility to be used in its operations on this property.
“A” intends to contribute his 100% interest in ZZ Leasing LLC (ZZ Leasing) and ZZ Leasing Management LLC (ZZ Mgmt) to Holdings. ZZ Leasing operates the EZ Lease franchise for ZIP (another entity owned by some of the stockholders).
Also, “A” intends to contribute his receivable from ABCS and his personal debt associated with this receivable.
ABCE will receive an LLC membership interest in Holdings (approximately 79%) for the contribution of ABCS, MLTL and XX Daisy. B will receive an LLC membership interest in Holdings (approximately 8%) for his contribution of his interest in ABC LP and ABC Mgmt. “A” will receive an LLC membership interest in Holdings (approximately 13%) for his contribution of his interest in ABC LP, ABC Mgmt, ZZ Leasing and ZZ Mgmt, the new HHH property LLC and the receivable from ABCS with the associated debt.
Anticipated ownership of ABCE after the restructure will remain the same with “A” with 70%, “B” with 26% and “C” with 4%.
See the following table for voting stock percentages.
| ABCS, ABCL & XX Daisy | ABC LP & ABC Mgmt | ZZ Leasing & ZZ Mgmt | HHH property (new LLC) | “A” receivable and debt | |
| Control structure before restructure (voting stock ownership) | “A” (5.67%) “B” (5.67%) “C” (0.24%) | Combined: “A” - 50% “B” - 50% | “A” – 100% | “A” – 100% | “A” – 100% |
| Control structure after restructure (voting stock ownership) | “A” (5.67%) “B” (5.67%) “C” (0.24%) | “A” (5.67%) “B” (5.67%) “C” (0.24%) | “A” (5.67%) “B” (5.67%) “C” (0.24%) | “A” (5.67%) “B” (5.67%) “C” (0.24%) | Holdings 100% |
Questions
How should these various contributions be recorded?
Are these transactions between entities under common control?
If under common control, is there a change in control?
