# ASC 805-40-05: Business Combinations — Reverse Acquisitions — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

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## ASC 805-40-05: 05 Overview and Background

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##### [805-40-05-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-05-1)

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This Subtopic provides incremental guidance on the application of the acquisition method (as described in paragraph [805-10-05-4](https://asc.understandingaccounting.org/asc/805/10/#805-10-05-4)) to a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") that is a [reverse acquisition](https://asc.understandingaccounting.org/glossary/r/#reverse-acquisition "An acquisition in which the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes based on the guidance in paragraphs 805-10-55-11805-10-55-12805-10-55-13805-10-55-14805-10-55-15. The entity whose equity interests are acquired (the legal acquiree) must be the acquirer for accounting purposes for the transaction to be considered a reverse acquisition.").

##### [805-40-05-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-05-2)

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As one example of a reverse acquisition, a private operating entity may want to become a public entity but not want to register its equity shares. To become a public entity, the private entity will arrange for a public entity to acquire its equity interests in exchange for the equity interests of the public entity. In this situation, the public entity is the legal acquirer because it issued its equity interests, and the private entity is the legal acquiree because its equity interests were acquired. However, application of the guidance in paragraphs

[805-10-55-11 through 55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-11)

results in identifying:

1.  a
    
    The public entity as the [acquiree](https://asc.understandingaccounting.org/glossary/a/#acquiree "The business or businesses that the acquirer obtains control of in a business combination. This term also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition by a not-for-profit entity.") for accounting purposes (the accounting acquiree)
    
2.  b
    
    The private entity as the [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") for accounting purposes (the accounting acquirer).