As a small business grows, it may seek to purchase or acquire another business. The business it is acquiring could be a competitor, a supplier, or a means of entry into an entirely new market. Two or more businesses may decide to join together in what is commonly known as a “merger,” with one of the companies taking over all of the shares, assets, and liabilities, and emerging as a new company. These types of transactions require careful negotiation and planning, with consideration given to the rights and interests of the shareholders, management, employees, and creditors of all of the companies involved. State and federal antitrust laws must also factor into planning a merger or acquisition transaction. An experienced business lawyer can advise New York and New Jersey businesses that wish to pursue a merger or acquisition.
Two or more companies may decide to merge and form a new, larger company that takes on the assets and liabilities of all the participating businesses. One company, known as the “surviving company,” acquires all of the assets of the other companies and assumes all of their liabilities. For corporations, shares of stock in the other companies are converted into shares of the surviving company, and all shareholders become shareholders of the surviving company. The same may apply to membership interests in merging limited liability companies (LLCs), and partnership interests in merging partnerships. The surviving company emerges from the merger, and may change its name to reflect a new identity.
Mergers carry a substantial amount of risk associated with unknown or unforeseen liabilities and other defects, such as pending lawsuits, outstanding judgments, and regulatory investigations. Each company participating in a merger must exercise due diligence by carefully reviewing the other companies.
Share or Stock Purchase
One company may purchase all of the outstanding shares of a “target company” in a stock acquisition. The purchasing company buys out the target company’s shareholders, acquiring all of its assets and assuming all of its liabilities. A share purchase agreement therefore usually requires approval of the shareholders, although the procedure for this may vary from one company to another. The target company may become a subsidiary of the purchasing company.
An asset purchase generally involves less risk to a purchasing company, because it does not include assumption of the target company’s liabilities. The downside is that the purchasing company must transfer title to all of the assets acquired, which may include real property, vehicles, equipment, and notes and accounts receivable. This type of purchase agreement also generally requires shareholder approval, but does not result in acquisition of the target company itself.
Merger or acquisition agreements require careful planning and drafting in order to avoid antitrust violations. The Attorneys General in New York and New Jersey have authority to enforce state and federal antitrust laws. These laws, such as the New Jersey Antitrust Act and the federal Sherman Act, prohibit monopolization and other anticompetitive practices. State regulators and private citizens may bring suit to enjoin mergers or acquisitions that allegedly violate antitrust laws.
The business attorneys at Samuel C. Berger, PC offer fixed-fee packages of legal services to New York and New Jersey businesses and entrepreneurs. We are committed to helping our clients grow and prosper, and we represent businesses in a wide range of legal issues. Contact us today online or at (212) 380-8117 to speak to a member of our legal team.
More Blog Posts:
Winding Up and Dissolving a New Jersey Business, New York & New Jersey Business Lawyer Blog, April 11, 2013
Three Issues to Consider When Buying a New York or New Jersey Business, New York & New Jersey Business Lawyer Blog, September 14, 2012
New York Tax Court Rules that Business is Liable for Full Sales Tax Bill after Transfer of Business Assets, New York & New Jersey Business Lawyer Blog, August 30, 2012
Photo credit: ‘The Bosses of the Senate’ by Joseph Keppler [Public domain], via Wikimedia Commons.