Many people in New Jersey hear the terms “merger” and “acquisition” but may not know exactly how these two business transactions differ from one another. Therefore, it is useful to understand the legal definitions of “merger” and “acquisition” to better understand how two businesses can join together to increase their value.
A merger takes place when two separate businesses combine to form a completely new business. Each business consolidates its resources and assets, and the newly formed business will have new ownership and a new structure of management (albeit, usually consisting of members from each of the original businesses). It is not necessary to have money to complete a merger, but each business’s individual capacity to make its own decisions will be diluted.
An acquisition takes place when one business takes over another business. A new business is not formed. Instead, the smaller business ceases to exist since its assets are now part of the larger business. In an acquisition, the larger business will take over all the operational management of the smaller business. It takes a great amount of money to execute an acquisition, but the buying business’s power comes through the process unscathed.
True mergers of equals are rare. Therefore, in the business world, it is now common to refer to such business dealings as “merger and acquisition transactions” instead of differentiating between the two dealings. However, for legal purposes, there is still a difference between these two business transactions.
Depending on the business type, there are laws governing how businesses can be formed and what is required of them. Therefore, it is important that businesses considering joining forces through a merger or acquisition seek the help needed to draft and file the appropriate legal documents and agreements.