There are many reasons for public and privately held businesses to go through mergers or acquisitions.
Business owners may merge with another company because they want to expand their share of the market, enhance their ability to compete, diversify or grow their business, and more. And many entrepreneurs who are seeking to retire or estate plan may be interested in having their business acquired by another company.
Regardless of why you’re pursuing a merger or acquisition, the structure of the transaction is vitally important. Even structures that are pretty much the same in the day-to-day operations of the business can have vastly different implications for the owners’ liability, rights, protections, and taxes.
Because of this, we highly recommend discussing and reviewing plans with a business attorney. It helps to have someone in your corner.
In a merger, one company is absorbed into another or both companies legally cease to exist and instead become a new business. In cases where one company is absorbed, the payout for the business owner or shareholders is typically cash or stock in the new company.
To pursue a merger, you need to get approval from your board of directors and shareholders. If there are dissenting shareholders, they can exercise appraisal rights, which means they get paid fair market value for their shares.
Legally, the board of directors must make its decision according to what’s in the best interests of the company and shareholders.
Once you have approval—and you’ve worked with your business lawyer to make sure the transaction is structured in a way that protects you and meets your goals—then you need to file a plan of merger and any attachments with the Texas Office of the Secretary of State. (In some instances, you may fill out the Alternative Statements section instead of filing a plan.)
While filing may seem like a minor administrative step, mergers do get rejected if you don’t properly complete the paperwork.
In acquisitions, one business acquires the assets or stock of another, but the acquired business continues to run as a separate entity. There are two common scenarios for this.
In one, the acquiring company buys a controlling amount of shares in the other business, which then becomes a subsidiary or is liquidated and merged into the acquiring company. In this scenario, the acquired business doesn’t necessarily have to agree to be acquired.
In the other, the acquiring company buys all the assets or shares. The acquired business may remain a separate entity or, more frequently, it dissolves, though its officers may join the acquiring company. The acquiring company also takes on some to all of its liability.
To complete the acquisitions process, the acquired business may need to amend its certificate of formation with the Secretary of State.
There are many reasons for merging with or acquiring another business—and many different versions of what a successful process looks like. Complicating factors abound, including having family members among the shareholders, which can always make for an interesting Thanksgiving.
At the end of the day, everyone’s hustle looks different.
As you go through the merger or acquisitions process, it’s important to retain legal counsel. An experienced business attorney can help you better understand legal transaction structures, draw up contracts, negotiate with shareholders or in terms of severance pay, and more.
If you have questions about mergers, acquisitions, or other business matters, contact us. Our experienced Texas attorneys can guide you through the process.