Mergers under Business Organizations
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Mergers in Business Organizations
Definition:
A merger is a legal combination of two or more separate business entities into a single surviving entity. Typically, one company absorbs the other(s), and the absorbed companies cease to exist as separate legal entities.
Key Characteristics
Surviving Entity: After the merger, only one company remains legally, taking over all assets, liabilities, rights, and obligations of the other(s).
Types of Mergers:
Statutory Merger: One company merges into another, and the latter continues as the surviving corporation.
Statutory Consolidation: Two or more companies combine to form a new entity, and all original companies dissolve.
Process
Board Approval: The boards of directors of the merging companies must approve the merger plan.
Shareholder Approval: Shareholders typically vote on the merger; approval thresholds vary by jurisdiction and company bylaws.
Filing: The companies file the merger documents with the state government (usually Secretary of State).
Effect: Upon filing and compliance with statutory requirements, the merger becomes effective and the surviving company assumes all assets and liabilities.
Effects of a Merger
Successor Liability: The surviving company inherits all liabilities (contracts, debts, torts) of the merged entities.
Ownership Changes: Shareholders of the absorbed company may receive shares, cash, or other consideration in the surviving company.
Corporate Structure: The surviving company continues to exist; the other(s) cease to exist as separate entities.
Continuity: The surviving company maintains its legal identity, including ongoing contracts and licenses.
Reasons for Mergers
Growth: Expand market share or geographic reach.
Synergies: Reduce costs or increase efficiencies by combining operations.
Diversification: Enter new markets or industries.
Eliminate Competition: Absorb competitors.
Tax Advantages: Sometimes, mergers can create tax benefits.
Differences Between Merger and Acquisition
A merger legally combines companies into one entity.
An acquisition may involve one company buying another, which may continue as a separate entity (subsidiary).
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