Using A Rights Plan to Protect Your NOL Assets

Jan 19, 2016

Reading Time : 1 min

Pursuant to Section 382 of the Internal Revenue Code, an “ownership change” is trigged if one or more 5 percent shareholders of the subject corporation increase their ownership in the corporation by more than 50 percent during the shorter of (i) the prior three-year period or (ii) the period since the date of the last ownership change. These determinations are potentially complex, and special rules apply, including that entities acting in concert be treated as a 5 percent shareholder if they meet the 5 percent threshold in the aggregate. If an “ownership change” occurs, the ability of the corporation to use NOLs to offset future taxable income is subject to limitations that can severely impair the value of the NOL asset.

Since Section 382 tracks 5 percent shareholders, an NOL rights plan typically has a lower trigger (often 4.99 percent) as compared to the 10-20 percent threshold, which is more typical in a traditional rights plan. Since boards may be concerned that an NOL rights plan may adversely impact investment in the company’s stock, such rights plans may also include provisions to avoid an unwanted triggering if there is no threat to the NOL asset. For example, a board may waive the application of the trigger if it determines that an acquisition is unlikely to limit the value of the NOL asset.

It is worth noting that, although NOL rights plans are certainly protective, they cannot prevent a stockholder from acquiring additional shares; they merely act as a deterrent. In addition, they do not prevent or restrict stock sales that may also trigger an ownership change under the tax rules. However, if a significant risk exists that the ability of a corporation to use NOL carryforwards may be impaired, a board should carefully consider its options, including a rights plan, to protect this valuable asset.

Share This Insight

Categories

Previous Entries

Speaking Energy

March 10, 2025

On March 5, 2025, the United States Department of Energy (DOE) approved Golden Pass LNG Terminal LLC’s (GPLNG) request to extend a deadline to begin exporting liquefied natural gas (LNG) from its terminal facility currently under construction in Sabine Pass, Texas for 18 months, from September 30, 2025, to March 31, 2027 (the Order). The Order amends GPLNG’s two existing long-term orders authorizing the export of domestically produced LNG to countries with which the United States does and does not have free trade agreements (FTA).1  The Order does not amend the authorizations’ end date, which remains December 31, 2050. Under section 3 of the Natural Gas Act (NGA), the DOE may authorize exports to non-FTA countries following completion of a “public interest” review, whereas exports to FTA countries are deemed to be in the public interest and the DOE is directed to issue authorizations without modification or delay.

...

Read More

Speaking Energy

March 4, 2025

Join projects & energy transition partner Shariff Barakat at Infocast’s Solar & Wind, where he will moderate the “Tax Equity Market Dynamics” panel.

...

Read More

Speaking Energy

February 13, 2025

Oil & gas companies continue to identify and capitalize on opportunities related to the deployment of new energy technologies, with their approaches broadly maturing and coalescing around maximizing synergies, leveraging available subsidies and responding to regulatory drivers.

...

Read More

Speaking Energy

February 11, 2025

On January 30, 2025, the Federal Energy Regulatory Commission (FERC or the Commission) approved a Stipulation and Consent Agreement (Agreement) between the Office of Enforcement (OE) and Stronghold Digital Mining Inc. (Stronghold) resolving an investigation into whether Stronghold had violated the PJM Interconnection, L.L.C. (PJM) tariff and Commission regulations by limiting the quantity of energy made available to the market to serve a co-located Bitcoin mining operation.1 This order appears to be the first instance of a public enforcement action involving co-located load and generation and comes at a time when both FERC and market operators2 are scrutinizing the treatment of co-located load due to the rapid increase in demand associated with data center development.

...

Read More

Speaking Energy

February 5, 2025

2024 was about post-consolidation deal flow and a steady uptick in activity across the oil & gas market. This year, mergers & acquisitions (M&A) activity looks set to take on a different tone as major consolidation plays bed down.

...

Read More

Speaking Energy

January 30, 2025

The oil & gas industry is experiencing a capital resurgence, driven by stabilizing interest rates and renewed attention from institutional investors. Private equity is leading the charge with private credit filling the void in traditional energy finance and hybrid capital instruments gaining in popularity. Family offices are also playing a crucial role, providing long-term, flexible investments.

...

Read More

Speaking Energy

January 23, 2025

Under a second Trump presidency, the U.S. is expected to consider reversal of many of the Biden administration’s climate and environmental policies, in addition to a markedly different approach to trade policy and oil & gas regulation. This includes expanding oil & gas development on public lands and offshore, lifting the pause on liquified natural gas (LNG) exports to non-Free Trade Agreement countries and repealing the methane fee.

...

Read More

Speaking Energy

January 15, 2025

We are pleased to share a recording of Akin’s recently presented webinar, “Drilling Down: What Oil & Gas Companies Can Expect from Federal Agencies During Trump’s Second Administration.”

...

Read More

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.