In finance, a triangular merger is a merger of two corporations facilitated by the use of a third, shell corporation, which is a wholly owned subsidiary of the buying company.
There are two types of triangular merger:
1) A forward triangular merger is when the target corporation is merged into the shell company, which acquires all its assets and liabilities. For tax purposes, a forward triangular merger is treated as if the target company sold all its assets to the shell, and then liquidated. Forward triangular mergers are useful for shielding the purchasing company from the target companies liabilities (including nasty stuff like potential lawsuits).
2) A reverse triangular merger is when the shell company purchases the target company, but then itself is absorbed into the target company, leaving the target company as the surviving company, rather than the shell company. For tax purposes, a reverse triangular merger is tax free in the United States as long as the purchasing corporation buys the target corporation using at least 50% stock in the new parent company. A reverse triangular merger also has the benefit of allowing the target company to survive, keeping all its branding and existing contracts intact.