Corporate mergers can be a major benefit to any corporation. However, there are many questions you may ask yourself before starting the endeavor. What are the factors that you need to consider before a merger? What are the risks involved in this action? And what is the legal process for California corporate mergers?
At Fishman, Larsen & Callister, we’ve handled corporate mergers throughout the Central Valley. Our California corporate attorneys are prepared to walk you through the legal process of merging two businesses and helping you every step along the way.
Merger vs. Acquisition
A 2022 study showed that corporations post-merger had a revenue growth increase of 5.3%. Before covering the details of a corporate merger, it’s important to establish the difference between a merger and an acquisition.
An acquisition is when one business purchases another. This can be accomplished by purchasing its assets or by buying enough shares to establish ownership. It can be a friendly or hostile takeover, depending on the dynamics involved. The purchased company will then be, in essence, a subsidiary of another.
Mergers, on the other hand, are an agreement between two businesses to join into one. It involves more negotiation as both entities will be combined, melding into one and losing their independent status.
Both processes can take anywhere from months to years, depending on a variety of factors.
Hire a Corporate Lawyer
A corporate merger can be a legally complex process, with each step requiring extensive negotiation between both companies. While it is not required, it may be a good idea to ease the process and hire a corporate lawyer to handle these communications.
Corporate law can be tricky, and having an experienced corporate lawyer by your side can save a lot of trouble. The following are the incremental steps required by California state law to turn two corporations into one legal entity:
Board Approval of Plan of Merger
The discussion of merging can be initiated by either party. Both boards of directors will go through a negotiation process to decide the final version of the combined company. Many propositions may be made, but none matter until the final plan of merger is signed. Both boards of directors will take a vote to confirm the plan of merger.
Shareholders Vote
After the directors have finished developing a plan of merger, the proposal will be given to the shareholders. Here, shareholders of both corporations will vote on whether the merger will continue. This vote will require a majority vote of both boards of shareholders, unless there are specific higher thresholds detailed in the bylaws.
A shareholder vote may be skipped if one company owns 90% or more of a subsidiary company. In that case, a short-form merger is possible.
Agreement of Merger & Confirmation with the Secretary of State
After the plan of merger has been approved by both the Boards, an agreement of merger will be signed. This is the final version of the plan of merger that will include all details of the forthcoming new business.
Following the finalized agreement of merger, a Certificate of Merger must be filed with the California Secretary of State. This legally enacts the merger, making the former companies disappear and establishing the new company.
Alerting the Secretary of State is the final step in a corporate merger. At this point, the negotiations are over, and the company is founded.
Post-Merger Updates & the Path Forward
The new corporation will take control of all assets and obligations of the previous two businesses. The following period is a time when the new legal entity must update any business licenses, insurances, and bank accounts with the new name. They also must notify any contract parties or clients. Finally, the two former corporations must learn how to work together in the new company and find a new equilibrium.
FAQs
Q: What Is the Merger Clause in California?
A: The merger clause refers to the section of the California Code of Civil Procedure that specifies that the final version of a merger contract is the only legally binding version, discounting any preceding negotiation. This means that any written or oral agreements made before the final contract are null and void and do not matter for any execution of the contract.
Q: What Are the Procedures for a Merger?
A: The basic procedures for a corporate merger can be broken down as follows:
- Both companies’ boards of directors approve a plan of merger
- Shareholders approve
- A Certificate of Merger or Agreement of Merger is filed with the Secretary of State.
- The new merged company updates any contract parties and updates their licenses, insurance, and accounts.
Q: What Is the California Corporation Code for Mergers?
A: In Chapter 11 of the California Corporations Code, the exact rules and regulations for corporate mergers are laid out. This walks through the aforementioned procedures of a corporate merger, starting with both boards and shareholders approving the plan, and ending with the filing with the Secretary of State. A corporate law attorney can help break down the specific legal language used in the code.
Q: What Are Some Benefits and Risks Involved in a Corporate Merger?
A: Corporate mergers can be beneficial to both businesses when executed correctly. The new company can increase its market share and field of reach in ways that the two corporations operating independently could not. The staff of both companies can work better together than apart.
However, there are risks. If the company’s teams do not mesh well, it can lead to unwanted drama and loss of productivity. Additionally, a merger can be an expensive process. A corporate attorney can help you decide if it’s worth it.
California Corporate Attorneys – Fishman, Larsen & Callister
At Fishman, Larsen & Callister, we are ready and able to discuss your plans for a corporate merger. We want to hear your story and prepare you for any problems that may arise in the case of the two businesses merging. Contact us today so we can consult with you on what the path forward looks like. You may also visit us at our Fresno location, located in the Woodward Center and bordering the Kaiser Permanente Fresno Medical Center.