Mergers and acquisitions refer to a variety of legal transactions two businesses undertake to consolidate their companies or assets. A successful merger or acquisition can be financially beneficial to both businesses. It is important for businesses in Tennessee to learn the difference between a merger and acquisition, so they can determine which option is right for them.
In a merger, one business will acquire another, with the shareholders’ approval and with the agreement of both business’ board of directors. Once the merger is complete, the target business has become part of the acquiring business, and thus no longer exists as a separate legal entity. Mergers are often viewed as “friendly” when they have the approval of both companies’ shareholders and both companies are equals in the resulting organization.
Conversely, in an acquisition, one company will acquire the majority stake in another company. The target business retains its own name and legal structure, but because the acquiring business now has the majority of the target business’ shares, it can make business decisions without seeking the approval of the target business’ shareholders.
The fact of the matter, though, is that friendly mergers are rare, and acquisitions can carry a negative stigma. Therefore, these types of business transactions are increasingly being referred to as simply a “merger and acquisition,” rather than differentiating between the two types of transactions. Because this is such a complicated are of business law, companies interested in undergoing a merger or acquisition will want to seek the legal advice necessary to understand their rights and duties in such transactions.