Mergers and Acquisitions in Florida – Knowing Your Rights

While “mergers and acquisitions” are usually treated as if they were the same thing, each refers to its own specific process. Both are pretty self-explanatory. A merger combines two separate, already existing businesses into a single new entity. Acquisitions, on the other hand, occur when one business purchases another business’s stock or assets. What’s more, mergers and acquisitions also come with their own liabilities and responsibilities.

Mergers and Acquisitions: Asset Purchases

When purchasing another business’s assets, the buyers aren’t responsible for the seller’s debts and liabilities in most situations. However, there are a number of exceptions that you should be aware of, such as when a buyer willingly takes on the debts of the seller in exchange for a lower sale price. Fraudulent sales and failure to comply with state laws such as the “bulk sales law” will similarly void any protections. Other special cases include “de facto mergers” between two companies attempting to skirt state laws on mergers, as well as situations where the buyer is a “continuation” of the seller. A buyer is considered to be a continuation of the seller when both parties have the same (or largely similar) officers, directors, and shareholders before and after sale.

Mergers and Acquisitions: Stock Purchases

The other type of acquisition involves taking over a business entity by purchasing most or all of its stock. In these situations, the buyer takes control of the seller’s business and more or less maintains the status quo. A stock purchase transfers all debts, lawsuits, and responsibilities to the buyer. Keep in mind that the buyer is liable for these debts and obligations even if they’re unknown at the time of sale.

Some stock purchases will require obtaining the approval of the buyer or seller’s shareholders. The situations that call for the approval of the seller’s shareholders depend on state laws. The buyer requires shareholder approval if the transaction will cause a significant shift in voting power. The buyer also requires shareholder approval to issue more shares than authorized in the corporate charter to fund the transaction.

More on the differences between asset purchases and stock (or entity) purchases can be found here.

Mergers and Acquisitions: Mergers

The company formed by a merger is responsible for all liabilities, obligations, and even criminal penalties incurred by either business before the merger. Any pending legal proceedings against the component businesses will continue uninterrupted. This is also the case for any of the preexisting suits filed by the business before the merger. It’s also worth noting that mergers will require the approval of the stockholders.

Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling 727-279-5037.