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When to choose merger, and when to choose acquisition

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When your business is looking to expand by joining forces with another business, one of the discussions you will need to have is whether to pursue merger or acquisition. Under Florida law, mergers and acquisitions have small but important differences.

Generally, an acquisition is like buying a company outright. In an acquisition, one business takes over another, and declares itself to be the new owner. The purchaser absorbs the target business, including its assets and debts, and the target business ceases to exist as a business entity.

A merger is typically more of a combination, where two businesses come together to create a new business entity.

For publicly traded corporations, an acquisition means the target company’s stock will no longer be traded while the purchaser’s stock continues to be traded as usual. In a merger, both businesses surrender their stocks and begin trading stock as a new entity.

While a merger often involves two businesses of roughly equal size, it isn’t always a union of equals. If the two companies have boards of directors, the boards must meet to approve the merger. If necessary, they must seek approval from the shareholders. Some mergers require another action known as consolidation.

In some cases, a combined approach may be best. For example, in some acquisitions where the purchaser buys a majority stake in the target company, the target company does not legally cease to exist.

The type of legal structure you choose when forming or expanding your business can have profound consequences for the company’s future, as well as for your personal future. Talk to a skilled business attorney about how to protect yourself and your business and to prepare for success and growth.