Merging Two Corporations
Merging two corporations usually entails one company being absorbed into the other. Often the smaller of the two is the one that is absorbed. Another type of merger that will be discussed, the holding company, allows both companies to retain their respective identities. Your College Station business lawyer can help you through the merging process to ensure that it is done in accordance with state and federal laws.
Regardless of the size of the existing corporation, by definition it has stock which is either owned entirely by internal shareholders or is offered publically. Ownership of stock is ownership in the corporation. Thus, when one corporation determines to absorb another, it does so in part by acquiring a controlling interest in that corporation's stock. A College Station business lawyer will advise you that having a controlling interest is not the same as having a majority of stock. Rather, it entails ownership of enough stock to have a significant influence on the board, i.e. add or remove members and controlling a vote.
If one of the two merging companies is to be kept as a holding company, once acquisition is complete the board must meet to vote that its by-laws be changed to operate as such. Certain paperwork must be filed with the state, and then the board votes to purchase stock in the subsidiary, or second corporation. There are specific requirements which must be met to operate as a holding company, such as that at least 60% of income must come from the subsidiaries.
Procedure for Merging Corporations
The steps necessary for merging two corporations are as follows:
• The boards of directors, along with shareholders meet from both companies to vote on the merger. • Provided approval is obtained from both, the necessary paperwork is then filed with the secretary of state. • Negotiate the specific terms of the merger. • Develop a plan for handling disputes and incorporate this into the new by-laws. • Decide which company name to use. In some instances the name of the parent company may be altered to reflect the presence of the subsidiary under its umbrella. For instance, in the 1980s Smith Kline acquired Beckman instruments, and in doing so changed its name to SmithKline Beckman. • Determine who will sit on the new board of directors.
It is important to keep in mind that any creditor claims against the merging companies remains. A name change does not remove this liability.
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