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What is the difference between a merger and an acquisition?

On Behalf of | Mar 22, 2023 | Business Law |

Once your company has become profitable and built a name for itself, maintaining growth may come down to entering a new market or expanding your inventory. Instead of starting from the ground up, you may consider a merger or an acquisition to spur growth faster. But what exactly is the difference between these two related terms? How can you make a success of either option?

Merger defined

A merger is the combining of two previously separate businesses into a single new entity. This option makes the most sense if two businesses with equal value want to begin as a new company. A merger may present particular challenges to both established companies, as the new business must reconfigure all its management and administrative jobs before functioning under its new authority.

Acquisition defined

An acquisition means that one of the two involved companies absorbs the other into its already existing entity. This option makes the most sense when one of the companies has a significantly better structure or business model, as it allows the better-suited company to continue the day-to-day functions with the assistance of the assets of the now-acquired business.

Make a success of your acquisition

Most commonly, what we call a merger is actually an acquisition. To make an acquisition legal and beneficial, prepare a sales agreement that accurately reflects the value of the inventory, personnel, stock and assets of the business that will be absorbed. Make sure that your document spells out a plan for how operations of the soon-to-be-absorbed company will carry out their day-to-day functions prior to the finalization of the acquisition.

After completing the transfer of business ownership, communicate to the state what changes have been made, and ensure that any licenses and permits accurately reflect the new corporate structure.

When to consult an attorney

As a business owner, choosing to begin a relationship with an experienced attorney early in your business dealings will provide you with a reliable source of wisdom during all the decisions your business will demand of you. In the case of pursuing a merger or an acquisition of another company, consult with your attorney early in the process to be advised on any liabilities or benefits you may not fully understand.

Always consult with your attorney when creating the sales agreement and the terms of the transfer of business ownership.

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