Terms like merger, acquisition
Mergers and acquisitions are terms used interchangeably but they are not the same.
What Is an Acquisition and How Can It Help Small Businesses?
An acquisition is how a business is taken over by another party. The party being bought doesn’t always need to agree to be acquired. There are two types of acquisitions: stock and asset.
In the case of
Individuals have a right to sell their shares or membership interest at the highest price regardless of the opinions of management. It can be difficult to get the parties to decide on the value which is why acquisitions do not always work out. Valuing a business requires knowledgeable accountants and it can be hard to get everyone to agree. That is where asset acquisitions come into play.
In the case where a corporation or LLC only has limited items of value, an asset acquisition allows the buyer to purchase any of the assets it wants as long as it is not a sale in the ordinary course of business. For
What is a Merger and how it can Strengthen a Small Business?
A merger takes place when two or more businesses want to join forces and become a single entity. Many businesses may take part in a merger, but at the end of the day, there is only one survivor. The surviving entity owns all the assets, liabilities, and obligations of the companies that are party to the merger. Many smaller businesses engage in mergers when they are doing well but need to take their growth to the next level. The synergy between the companies allows for the sharing of certain assets, liabilities as well as scaling of operations.
There are three types of mergers that one may encounter: general mergers, entity mergers
A general merger is enacted under the general merger statutes (laws vary by state). These mergers are general in the sense that they are not specific and potentially apply to all mergers. Any merger can be enacted under the general merger statutes, even where specific or
In a general merger, all boards of all constituent corporations must approve the merger. The shareholders of the corporation that is merging out of existence must always approve the plan since it involves such a radical and fundamental change in their
In addition to mergers occurring between or among domestic entities, they may also happen between domestic and foreign (out of state) entities. For example, a Georgia corporation may pursue a merger with a Michigan LLC pursuant to statutes.
Parent-subsidiary mergers are often called
Converting a Business Entity and Re-Domestication to
Conversions are another device enabling businesses to change when the need arises. Conversions are a single entity transaction where a business entity can change its entity type and/or move to another state. Some states call moving to another state re-domestication rather than conversion. The existing entity which wants to change is called the old or converting entity. The new entity is called the converted or resulting entity.
Conversions are like mergers in that the converted entity has all the duties, debts, obligations and resources as the old entity. The converted entity is deemed to have existed without interruption and will have the same formation date as the old entity with a new entity type or home state. There may also be tax consequences, so it is advised business owners consult a tax advisor before engaging in this transaction. In fact, some entities will convert to another due to tax-related issues.
Types of Small Business and Corporate Conversions
Some common examples of conversion include a corporation becoming an LLC; an LLC becoming an LP; a general partnership becoming a limited partnership; or an LLC becoming a corporation. There are also instances in which a business corporation may become a nonprofit corporation or vice versa.
Entities change what they are, because of the benefits that come with their newly found state of being. An LLC may convert to a corporation if it plans to go public (most publicly traded entities are corporations). That same LLC may also decide that it wants to escape from double taxation, which affects business corporations and
In today’s business environment which is rife with hurdles to growth and expansion, it is reassuring to know that there are tools available to help small businesses achieve a better state of being. Acquisitions, mergers