Forward Merger vs. Reverse Triangular Merger:
Which Structure Is Right for Your Deal?

In a forward merger, the target company merges directly into the acquirer - the target ceases to exist and all of its assets and liabilities are absorbed by the acquirer. The acquirer continues as the surviving entity. In a reverse triangular merger, the acquirer creates a new subsidiary that merges into the target - the target survives as a wholly-owned subsidiary of the acquirer. The merger subsidiary disappears, but the target entity lives on. Reverse triangular mergers are far more common because the target's survival preserves existing contracts, licenses, and permits without requiring third-party consents.

The reverse triangular merger is preferred because it preserves the target as a surviving legal entity. This means: existing contracts remain in place without assignment (they stay with the surviving entity); government licenses and permits do not need to be re-issued to a new entity; regulatory approvals (healthcare, financial services, government contracting) can survive the merger if change-of-control provisions are handled correctly; and customers and vendors experience no disruption. A forward merger, by contrast, transfers all contracts and obligations of the target to the acquirer - triggering assignment clauses and change-of-control notifications in virtually every material agreement.

In a forward triangular merger, the acquirer creates a new subsidiary, and the target merges into that subsidiary - the subsidiary survives (not the target). This is distinguished from a reverse triangular merger in that the target entity does not survive. Forward triangular mergers are sometimes used for tax reasons (they can qualify as a reorganization under IRC Section 368(a)(2)(D)) or when the acquirer wants to isolate the target's liabilities in a subsidiary without keeping the target's legal entity. They are less common than reverse triangular mergers because of the contract assignment issue.

Yes, in most jurisdictions. Target shareholders must approve the merger plan. The standard for approval varies by state - in Delaware, a majority of shares entitled to vote is typically required, though the certificate of incorporation may require a higher threshold. Acquirer shareholder approval is generally not required in a reverse triangular merger because the acquirer's subsidiary is doing the merging (not the acquirer itself), and the acquirer issues consideration directly to target shareholders without needing its own shareholder vote (unless the consideration is stock that exceeds the NYSE/Nasdaq threshold triggering a shareholder vote requirement).

These are different concepts that are frequently confused. A 'reverse merger' (or 'reverse takeover') refers to a private company going public by merging into an existing public shell company - this is a method of accessing public markets without a traditional IPO. A 'reverse triangular merger' is a specific deal structure where the acquirer's subsidiary merges into the target, leaving the target as a surviving subsidiary. The 'reverse' in reverse triangular merger refers to the direction of the merger (the subsidiary goes into the target, rather than the target going into the acquirer). They are unrelated structures that share the word 'reverse'.