[author: Michael Solomon]
As in most high-risk businesses, tax losses are an important consideration for life science startups. Indeed, given that only one company in 20 or 30 ultimately succeeds, a tax loss is frequently the only asset the company generates. How well that card is played can make a big difference in mitigating investor losses. In some circumstances, accumulated net operating losses (NOLs) can even serve as the keystone of a successful successor company. However, tax losses are easy to lose without careful planning. Section 382 of the Internal Revenue Code, the section that sets out the rules relating to the limitations on the use of NOLs when a change in control of the loss company occurs, was designed specifically to keep profitable companies from buying unprofitable companies simply to harvest their accumulated losses.
Learn more about the impact of Section 382 and strategies for navigating its limitations.