Using Rights Plans to Preserve Net Operating Losses

Sullivan & Cromwell LLP - March 27, 2020
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Businesses experiencing significant revenue drops as a result of COVID-19 may have, or will likely accumulate, significant net operating losses (NOLs) that can be used to offset corporate tax liabilities in future years.  In addition, many companies may have accumulated NOLs in the past that they wish to protect for future use. However, due to the operation of Section 382 of the Internal Revenue Code, companies’ ability to use NOLs may be limited in the event of certain acquisitions of a company’s equity securities.  One of the most effective means of protecting these valuable tax assets is by adopting an NOL shareholder rights plan.