Importance Of Online Data Rooms In Mergers And Acquisitions

A merger or acquisition is one of the forms of business reorganization. During the merger, a new company is formed from the other two; there are two options: the companies are merged into one new one and completely cease to exist, or the assets of two different companies merge, and the firms themselves are not liquidated after the procedure.

During a takeover, a legal entity interested in buying a new business acquires more than a third of the shares in the authorized capital of the absorbed company, which continues its development as long as it has other shareholders. Often, an acquisition can turn into a merger.

Types of Mergers and Acquisitions

There are several types of mergers and acquisitions:

  • Horizontal, in which two identical firms with the same business merge. This process reduces competition in the market.
  • Vertical, in which companies do business in the same industry and have a similar specialization. This usually results in a new monopoly.
  • As a result of a mixed merger, companies from different industries are merged.

A takeover is when one company buys a major share in the share capital of another company.

Merger Goals

When merging, the new legal entity already has specific rights and obligations that the company received from each participant in this procedure. Sometimes a merger acts as an alternative to liquidation.

But with proper management of the merger, this is an excellent tool for business development, as a result of which the assets of enterprises are combined and the shares of their founders in the new company are distributed.

Algorithm for the merger of companies (main stages)

On average, the terms of a company merger are from 3 to 12 months, and during this time it is necessary to take into account the interests of not only the owners of the reorganized legal entities but also their creditors, clients, deal with taxes and accounting, pay off debts to extra-budgetary funds.

  • The owners of the enterprises decide to merge them. The location does not affect the merger process; such a procedure can be carried out by companies in completely different regions. After the negotiation stage, the parties agree on reorganization through a merger.
  • The decision to sign such an agreement is made by companies independently of each other. Usually, the founders sign a special protocol, which is put on the agenda of an extraordinary meeting of owners. The minutes record the proposals of the founders and shareholders on the creation of a special commission that deals with the merger or acquisition and establishes the procedure for transferring the property of legal entities, its rights, and obligations.
  • Owners need to decide on tax registration – firms involved in a merger or acquisition may be located in different regions, and a new company can be registered in one of them or choose a third region to pay taxes and interact with the state.

Since all relations with creditors and counterparties must be re-registered for a newly created company through a merger, the old legal entities will have to pay off debts and demand their payment from debtors, fulfill all obligations under concluded agreements and transfer relations on them to a new company.