Generally speaking, a “business merger” may be defined as a transaction that occurs when one company acquires another company in order to join the two businesses together and establish a brand new company. This concept is often conflated with a specific type of business merger, which is simply called a “merger”, that involves two completely separate corporations combining together to form a single unified corporation.
When a merger involves the joining of two corporations, the separate forms of these entities will dissolve each of their respective assets and cease to operate. Any remaining liabilities may carry over into the newly established corporate entity. While this may sound similar to a standard business merger, the simplified term “merger” only applies to corporate entities.
Some other examples of business mergers that one may encounter under basic commercial and/or business laws include the following:
- Partnerships: A partnership is a business that is co-owned by a group of individuals. Partnerships are primarily formed in one of two ways: either as a general partnership or a limited partnership. Regardless of the type of partnership that is formed, a partnership business structure is legally different than two merged corporations due to the fact that a partnership is not a single entity, but rather a group of persons working towards a common business goal alongside one another.
- Joint ventures: A joint venture is when two businesses enter into a contract with one another to work on a specific project for the purposes of generating revenue for both companies. Unlike a merger, a joint venture serves as a temporary solution to accomplish a specific business goal. In contrast, a merger will join the two corporate entities to form a new corporation, which can last as long as the parties so desire.
- In other words, completing the project will not dissolve a corporation like it would terminate the contract between two businesses in a joint venture.
- Takeovers: A takeover refers to when one company enters into an agreement to purchase another company. The difference between a takeover transaction and a merger is that in a takeover, no new company is formed. Instead, the purchased company will still exist, but it will be operated under the guidance of the board for the company that purchased it.
- Strategic alliances: A strategic alliance is when two businesses link up to form a partnership in pursuit of an ongoing mission, such as purchasing a certain product to reduce costs for both companies and/or making a product in a way that both companies will profit from. The distinguishing factor between this type of business merger and a merger between two corporations is that the businesses within this partnership will remain as two separate entities.
- This is in direct contrast to the corporations involved in a merger, which will come together to create a unified corporate entity.
In addition to the various laws and legal procedures required for business mergers, the parties to a business merger will also need to make sure that the types of business structures that they are attempting to merge do not have any special rules attached to them or else the merger may fail.
For instance, if you are a member of a limited liability company (“LLC”) and you want to merge with a C corporation, you should find out all of the advantages and disadvantages that are associated with C corporations. Otherwise, you may be surprised when it comes time to pay taxes and you discover that you will now be forced to pay taxes as both a corporation and as an individual who can be held personally liable. Such taxes are not imposed under an LLC.
Finally, the laws surrounding business mergers can often be complicated and confusing. Therefore, you may want to consider hiring a local business lawyer or commercial attorney to oversee the business merger process. The parties to a business merger should make sure that they retain their own separate counsel. The reason for this is so that each side’s interests will be represented when it comes to negotiating and drafting the final terms of their contract.
Additionally, a business lawyer can recommend the best ways for you to achieve your business goals. This legal advice can be especially useful for someone who does not understand the intricacies of all the available business models.
Why Would I Want to Merge My Business with Another Business?
There are a number of reasons as to why a business owner would want to merge their company with that of another business. As discussed above, a merger is essentially the same as an acquisition. For instance, one business will buy another business in order to join together and create a single unified entity.
A merger can be useful when an owner wants their small business to grow in size and revenue, but does not want to have to sell the company and lose ownership rights or put it up for an initial public offering (“IPO”) under which the small business will no longer be a private company.
In such a scenario, a merger may provide a safer alternative for not only giving a small business more time to grow as a private company, but it also offers a potentially better way to increase a small business’s profits.
Another reason that an owner may want to merge their business with another company is if they are looking to enter into a new market space or niche. Acquiring a business that is already in the desired market space through a business merger can perhaps provide a less expensive way for the owner to test out a niche, as opposed to revamping the entire strategy of their own business. If a merged version fails, an owner will still have a profitable company.
In addition, some larger companies may opt to merge with another business in order to strengthen their own business model and diversify its products or services. In such cases, entering into a deal to merge and acquire another company can often accomplish this business goal in a relatively easier and more efficient manner. This can also help to reduce the costs of those products and services for both companies
Should I Consult a Business Attorney?
As discussed above, there are many complex legal requirements and rules that a business will need to comply with when merging and/or acquiring another company. Thus, it is generally recommended that a business owner who intends to merge and acquire another business speak to a business attorney in their jurisdiction as soon as possible.
A local business attorney who has experience in handling mergers and acquisitions will be able to provide guidance on the different types of rules and business models, as well as can suggest the best options for your specific type of company and your business goals. Your attorney will also be able to help you navigate the complicated procedures and laws that often govern the merger and acquisition process.
In addition, your attorney can draft, edit, and review any legal documents that are associated with a business merger matter, such as a written contract, the legal forms to create a new business entity, and various other documents that may be required under standard business laws.
Lastly, your lawyer will also be able to provide legal representation in civil court or at a settlement conference if there is an issue with the merger process or a dispute over a transaction involving a business merger.