During the course of a business’s life, it is common for mergers and acquisitions to occur. Merging two businesses together or changing ownership are decisions commonly made when it is in the best interests of the business. A well-planned merger or acquisition is a great opportunity for businesses to grow, expand, or reach new markets. Let’s take a look at an overview of mergers and acquisitions in Texas and how they may apply to your business.
An Overview of Mergers and Acquisitions in Texas
It is often believed that mergers and acquisitions primarily affect large, publicly held companies. While sometimes that is true, many small and privately held companies also utilize mergers and acquisitions to better their business practices. Some of the most common reasons to utilize a merger or acquisition include:
- Benefits of teaming with other managers
- Increase in market share
- Improved channels of delivery
- More effective market competition
- Retirement or Estate planning motives
The decision to proceed with a merger or acquisition is one that requires careful consideration. Many business owners find it helpful to review their plans with a corporate law attorney prior to entering into either transaction to ensure their legal rights and business interests are protected.
To better understand the purpose and mechanics of each transaction, consider the following overviews.
Overview of Mergers
A merger occurs when one business effectively absorbs another. The business that has been absorbed will no longer exist as a separate legal entity, but some elements of the absorbed business may continue to function as part of the merged business. The way in which a merger affects the business, or businesses, depends on how it is classified and managed legally.
The most common form of merger is the “statutory merger”, which means that the process of merging is governed by state law. A statutory merger may consist of a complete absorption of one business into the other, or may be classified as a “combination”, which means that the businesses are combined to create a new entity, with both existing business entities ceasing to exist as before.
Overview of Acquisitions
An acquisition occurs when one company acquires the stock or assets of another. Consider the following examples:
- Company A acquires all assets of Company B either by paying cash or issuing stock. Then, Company B would continue to function as a legal entity, but in most cases, the business dissolves with cash or stocks distributed to stakeholders.
- Company A purchases a controlling block of stocks in Company B. Company B would become a subsidiary of Company A and could continue to operate seemingly unaffected. Then, Company B would have the option of being liquidated and merged into Company A in this situation.
In many ways, mergers and acquisitions are similar, but there are specific laws and regulations that apply to each.
Mergers, Acquisitions, and Texas Law
When moving through the process of a merger or acquisition, there are some basic requirements that businesses must remember. More specifically, businesses are required to:
- Notify the Board of Directors and get approval
- Obtain approval from shareholders of the selling business
- Considerations of dissenters’ appraisal rights
Texas law provides a favorable business climate, including offering business owners flexibility when structuring and planning for the future. While the law does mandate certain requirements, it is structured in a way that supports businesses and allows business owners to operate and maintain their businesses efficiently.
Mergers and acquisitions are business transactions that have specific legal guidelines. One of the most important elements of a successful merger or acquisition is ensuring that your legal rights are protected and upheld throughout the process.
To learn more about mergers and acquisitions, or how Texas laws could affect your business transaction, contact the corporate law attorney at Daic Law today. At Daic Law, we help clients all across Texas manage and grow their businesses with confidence. Call us at (713) 808-5246, or email us at info@daiclaw.com.
Related Articles
10 Steps to Starting a Business in Texas
