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Mergers and Acquisitions, Business Sales

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How to Make Mergers and Acquisitions Legal

Mergers and acquisitions, otherwise known as M&A, are processes by which two or more business units are combined into one bigger entity. An acquisition or merger is carried out to combine resources of two distinct entities in order to provide a better quality of commodities and services to end users. The existing entity assumes all the privileges, rights, and liabilities of the merged entity. The less significant entity drops its identity and becomes an element of the more significant entity, which maintains its identity. For instance, a bank merger is a situation in which two or more investment banking companies merge their assets and liabilities to form one banking company.

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In a business merger or acquisition two entities are combined so that one entity is absolutely absorbed by another entity. Entities formally unite ownership of assets previously subject to separate controls. Such a process of purchasing assets of another company instead of its stock is known as asset acquisition strategy.

Before a merger or acquisition, the board of directors of an entity should pass a resolution and should notify all of its shareholders. The resolution should indicate the names of the entities that are to be merged, the mode of transferring shares of both entities, the name of the future merged entity, and any other lawful provisions. If the required number of shareholders pass the resolution, the directors file the resolution with the secretary of state. After the secretary of state issues an official document of merger, the new entity is formed.

Both federal and state statutes govern mergers and acquisitions. Most state statutes allow the directors to discard the merger plan at any time up until the resolution is filed with the secretary of state. Some state statutes allow a surviving entity to take over another entity by merger without presenting the resolution to its shareholders for consent.

Accurate accounting and business valuation is one of the most significant features of a merger and acquisition, as business valuations will have a key impact on the sale price of a business. A merger and acquisition requires due diligence investigation into a business' value.

Nowadays there are M&A consulting service providers. They provide different information on mergers and acquisitions, including recent acquisitions. These service providers are also known as transition companies. They assist in the entire process of transition of companies. Dealbook produced by The New York Times and Reuters News by Thomson Reuters are examples of M&A service providers that report on mergers and acquisitions.


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