In most private equity and other leveraged buyout transactions, the acquiring group will create a new legal entity (NewCo) to serve as the acquisition vehicle. NewCo will consolidate capital from the various debt and equity investors, acquire and manage the target business, and facilitate the distribution “waterfall” upon an exit.
In the last 15 years, the limited liability company has become increasingly popular as an investment vehicle for acquisition transactions. Certain types of investors (e.g., tax-exempt or non-U.S. persons) still prefer to own equity in C corporations. However, for many others, the LLC form is preferred. The LLC offers an appealing hybrid of the pass-through taxation and flexibility of partnerships and the limited liability of a corporation.
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