Legal Aspects of Mergers and Acquisitions in Business - Research Paper Example

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This paper focuses on the acquisition of three distinct entities and the effects on operational processes. The writer of the paper will illustrate the presented theory on examples of the Smith Bicycle company and Audi company. Finally, the paper suggests a business strategy for mergers…
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Legal Aspects of Mergers and Acquisitions in Business
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Download file to see previous pages If ABC wants to acquire Smith Bicycle Company, a private seller, it is vital to consider the two ways of acquiring the company. The first way of acquiring the business is by buying shares in the company that owns the business (Gole & Morris, 115). The second way of acquiring the company is through purchasing the assets of the company, which comprises the business. It is imperative to state that in this situation, the company is the seller, and it will thereby sell some or the entire assets to the buyer. It is worth denoting that share sales structure the majority of the acquisitions. A variety of factors may affect the structure used. Occasionally, it is vital to restructure the business or company before its sale in order to allow for proper acquisition. In the case of Smith Company, it is imperative to state that tax implications tremendously determine the structure of a transaction for both the buyer and sellers. Their interests may conflict particularly when achieving the vast beneficial tax outcome. Moreover, where sellers are individuals, there is a likelihood that the sellers will favor a share sale in order to circumvent a latent double tax charge (Gole & Morris, 116). This tax charge comprises of an initial tax charge on the company during the sale of assets to the buyer, and an additional tax charge on the shareholders of the company, when they pull out the sale profits from the company. Since tax immensely proves as a critical determining factor towards the structure of a deal, it is vital for the buyer and seller to obtain specialist tax advice. Based on the share sale, the buyer acquires the company together with all its “assets, liabilities, and obligations” (Gole & Morris, 118). This offers the sellers a suitable break, as, after the sale of the company, they will cease to have direct conscientiousness for the company. The buyer will thus owe any prevailing liability under the terms of warranties and indemnities agreed upon in the sale and purchase agreement. Based on business sale, there is only an acquisition of assets and liabilities purchased by the buyer, implying that everything else remains with the company (Gole & Morris, 118). If the buyer suspects of unknown liabilities within the company or troubled by any business aspect, the buyer prefers to structure the deal as a business sale. It is worth denoting that there exist more realistic and marketable issues to assert on a business sale other than on share sale. Based on the share sale, there is an only a transfer of ownership of the company shares. It is imperative to state that while there is a change on the shareholders of the company, the assets that are inclusive of business contracts and licenses remain with the company. From the outside, there is minimal change as customers and suppliers will continue dealing with the company. However, certain contracts such as financing contracts in conjunction with other long-term agreements at times require the consent of the other party after planning of change of company’s ownership (Gole & Morris, 120). It is critical to identify such contracts earlier in the acquisition process. ...Download file to see next pagesRead More
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