If you are a Florida business owner ready to grow or sell your business, you may be considering a merger or acquisition to take the next step in the business lifecycle. Whether that next phase is leveling up or retiring on the beach, you may be asking yourself, “Do all mergers and acquisitions require shareholder approval?” In planning transactions, business owners often want to know if and when a shareholder vote must occur and what steps are needed to approve a transaction.
The responsibilities of shareholders in mergers and acquisitions (M&A) vary depending upon the company’s governance documents and the laws of where your company and the target company are located. It is very important to speak with experienced M&A counsel as soon as you know you want to pursue a transaction.
Mergers and Acquisitions: A Quick Overview for Business Owners
What Is a Merger?
Mergers can be a combination of equal sized and revenue companies. Or a merger can be a situation where two companies of different sizes come together. In an equal merger, the combined company usually has close to equal board representation from both companies on the new, combined board. Shareholders typically surrender their existing shares or membership interests in exchange for shares in the new company.
Business owners need to know that the new company formed by a merger takes on responsibility for all liabilities incurred by either business before the merger. This can even mean another business’s criminal penalties and civil legal penalties. The fact that the action can heap liabilities and penalties on an existing company is one key reason shareholders must approve these kinds of transactions.
What Is an Acquisition?
Acquisitions can happen either through the purchase of stock in the target company or by the purchase of a majority of a target company’s assets.
In a stock purchase acquisition, the acquiring company purchases shares from the target company’s stockholders. By doing so, the purchaser assumes the target company’s assets and liabilities. In an asset acquisition, the acquiring company buys some or all of the target company’s assets. Usually, the acquiring company gets to choose which assets and liabilities it wants to take.
Do All Mergers and Acquisitions require shareholder approval? Considerations for Business Owners
Make sure you understand why your company is undertaking a transaction in the first place. You will want to ask your investors to approve a transaction only once. As a company owner, you need to consider various factors before expanding your business. Reasons you may want to consider a merger or acquisition include:
- Growing your company and increasing market share—These are common reasons to enter into M&A agreements. Many companies expand their opportunities by acquiring another business in the same market. If that transaction goes well, the business may achieve increased market share, greater profit, and more customers.
- Surviving competition—Sometimes, a business or business model becomes outdated due to innovation or changing tastes. The only way to survive is to merge or be acquired by another company.
- Taking over competitors—One way to overcome business competition is to buy out your competitors. While this may sound tempting, even if you have the resources, it can be very difficult in practice.
As you can see, businesses undertake mergers and acquisitions for many reasons. Before initiating a significant transaction, speak with an experienced M&A lawyer. The team at BrewerLong has been helping Florida businesses undertake complex transactions for over a decade.
Impact of Mergers and Acquisitions on Shareholders
Whether buying a business or selling a business, shareholders typically approve mergers and acquisitions at both the buying and selling companies. When a publicly traded company announces it will buy another, the target company’s share price will sometimes rise while the acquiring company’s share price may dip to account for the cost of the transaction. But if the market believes that the merger will benefit both parties, then both companies’ shares may rise in price slightly. However, if the market thinks the merger is foolish and will harm both companies, share prices may fall.
Why Do Shareholders Need to Approve Mergers?
You need shareholder approval because the company’s governing documents most likely require it. Statutory regulations requiring approval might also be involved. The process differs slightly depending on the entity type.
Corporations
If the target company is a corporation, then the company’s articles of incorporation and bylaws will likely govern whether the shareholders need to approve a merger. They may specify that a certain percentage of shareholders and a certain percentage of board directors must approve a transaction to proceed. A meeting of the shareholders or directors may also have to occur to document written consent to proceed with a purchase or sale.
Limited Liability Companies (LLCs)
Where the target company is an LLC, then the articles of organization and the company’s operating agreement will likely determine the procedure for a purchase or sale. Typically, a merger will require the approval of the LLC’s members or the approval of the board of managers, or, in some cases, both.
Whether buying or selling a company, understanding when and how shareholder approval is necessary to the transaction is key to success. An experienced Florida M&A lawyer can help review and interpret existing governance documents and explain how the procedure should work.
How BrewerLong Can Help Your Business
Whether you are buying a business or selling one, at BrewerLong, our Orlando mergers and acquisitions lawyers are prepared to help businesses on either side of these complex and complicated business transactions. Contact us to schedule an appointment to speak with one of our knowledgeable attorneys about your case and discuss your legal options in a merger or acquisition in Florida.
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