The main forms of reorganization, which result in the consolidation of enterprises, include the merger of several enterprises into one, the acquisition, and joint venture. In this article, we will learn how to distinguish these kinds of business transactions.
M&A deals – a good way to reorganize company structure
In world practice, it is common to define mergers and acquisitions (M&A) as a paid agreement, which results in the transfer of ownership of the company, which is often accompanied by a change in management of the acquired company with changes in its financial and production policies. The main goal pursued by the buyer company in the merger and acquisition is to gain strategic advantages over its competitors by buying an existing company and integrating it into its product portfolio.
A narrow understanding of mergers and acquisitions is based on the definition of reorganization of a legal entity, the forms of which are mergers and acquisitions. Thus, in the legal sense, mergers and acquisitions are a special case of reorganization, which is characterized by a change in the legal status of one of the involved entities and the termination of its existence.
Merger and acquisition: how to differentiate?
The merger means the consolidation of an enterprise that is in financial crisis with another financially stable enterprise. In the event of a merger, all property rights and obligations of each of them are transferred to the newly created enterprise. During such reorganization, the assets and liabilities of the reorganized enterprises are transferred in full to the successor enterprise; merged enterprises cease to operate and lose their legal status.
Certain goals of reorganization, such as diversification, access to new markets, access to resources, creation of concerns, holdings, etc. can be achieved not only through mergers or acquisitions but also through the acquisition of a large package of corporate rights of another entity. The acquisition is the takeover of corporate rights of an enterprise, as a result of which the buyer acquires control over the net assets and activities of such an enterprise. Such transactions can be made in exchange for the transfer of assets, the buyer's commitment, or the issue of shares.
The results of the M&A deals can be represented in the following way:
- acquisition by one enterprise of a share in the capital of another enterprise or assets in exchange for cash;
- receipt of other assets or liabilities;
- creation of a new legal entity;
- transfer of assets of the merged enterprise to another enterprise and liquidation of one of the merging enterprises.
The fundamental difference between a merger and a merger is that in the merger process all property rights and obligations of several legal entities are concentrated on the balance sheet of the company being created, and in the merger process – on the balance sheet of the company already operating at the time of the merger decision.
What is a joint venture?
In more concrete legal terms, a joint venture is an undertaking planned by at least two legally and economically independent companies, sharing managerial duties, responsibility, and economic risk. The main reason for forming a joint venture is to share the risk among different companies. In the run-up to a foundation, the following points must be agreed upon:
- corporate concept;
- choice of company form;
- financing and equity investments;
- management and leadership tasks;
- corporate bodies.
One of the disadvantages of a joint venture is the relatively high coordination effort. These include, for example, lengthy coordination and decision-making processes as well as overcoming intercultural or language conflicts in international joint ventures.