Recent census data shows that there are around 32.6 million businesses across the United States. As your company grows and evolves, there is a strong chance you will need to navigate “mergers,” “acquisitions,” and other aspects of “business law.”
In this guide, we’ll provide an overview of the key regulatory and legal aspects you should understand when dealing with mergers and acquisitions.
The Basics and Legal Aspects of Mergers and Acquisitions
Mergers and acquisitions (M&A) refer to the legal consolidation of two or more companies or assets. While the terms are often used interchangeably, there is a slight difference between them.
A merger occurs when two companies combine to form a new legal entity, and the previous entities cease to exist. The new company adopts a new corporate identity. In contrast, an acquisition happens when one company buys out another. The purchased company is absorbed into the buyer’s company and no longer exists as an independent entity.
Both mergers and acquisitions come with a range of legal complexities that need to be addressed.
How Mergers Work
There are several types of mergers, including:
- Vertical mergers, where a company merges with its supplier
- Horizontal mergers, where two competing companies merge to share markets or product lines
- Congenic mergers, where two companies merge because they target the same market in different ways
- Conglomerations, where two businesses merge despite having no common ground
Many mergers happen voluntarily, but others occur through consolidation when a larger company purchases two businesses to combine them.
The Basics of Acquisitions
Acquisitions present their own legal challenges, particularly in how they are financed. Acquiring companies can use cash, financial assets, stocks, or even assume the debt of the company they’re purchasing. Sometimes, a combination of these methods is used.
There are also cases of reverse mergers, where a private company is bought by a public company. This allows the private company to become publicly listed with tradable shares.
Regulatory Oversight of Mergers and Acquisitions
Mergers and acquisitions fall under both federal and state regulations, meaning there is dual jurisdiction. The federal government is responsible for overseeing securities transfers, policing competition, and mitigating risks from investments. State governments regulate internal corporate affairs, fiduciary duties, and any applicable anti-takeover laws.
Each state has its own rules regarding M&A transactions, so it’s essential to work with a knowledgeable business law attorney who understands the regulations in your state. They can help you protect your business and guide you through the complex legal aspects of M&A.
Company-to-Company Considerations
All companies registered under the Exchange Act must comply with U.S. tender offer rules, which include strict disclosure and procedural requirements such as timing and offer extensions. However, if your company is not registered under the Exchange Act or U.S. security holders own less than 10% of the offer’s class of securities, you may not be subject to these rules.
The Legal Aspects of Mergers and Acquisitions
Since mergers and acquisitions involve complex business law, hiring an experienced corporate attorney is essential. Your lawyer will work with representatives from all companies involved to clarify the details of the M&A, whether it’s the type of merger, the financing methods, or how assets and shares will be divided. This ensures all parties are prepared, and no one is caught off guard during the process.
Additionally a business and commercial lawyer will ensure that all necessary documents are prepared and filed correctly, preventing either party from contesting the terms later on. With proper legal guidance, everyone involved in the mergers or acquisitions process gets a fair outcome, and the transition is much smoother.
Talk With an Experienced Attorney
Now that you’re aware of the legal aspects of mergers and acquisitions, it’s time to consult with an expert in business law. Boyer Law Firm is dedicated to helping your company navigate these changes, keeping your business, employees, and assets secure.
Contact us today by filling out our online form or calling (407) 574-2573. We’re here to help you through every step of the M&A process.
