The best way to define a business merger is to compare it to other business terms that are frequently confused with the concept of a merger:
- Merger: This occurs when two separate corporations come together to form a new unified corporation. In other words, the two separate corporations cease to exist and fold all of their assets and liabilities into a newly created corporation.
- Takeover: This occurs when one company simply buys another company. A takeover is different from a merger because a new corporation is not formed since the acquiring corporation still exists.
- Partnership: A business that is co-owned by a group of individuals. It is different than a merger because a partnership is legally not a single entity but rather a group of individuals working together to achieve a common business goal.
- Joint Venture: This occurs when two business form a contractual agreement to work on a particular business project for the profit of both businesses. A joint venture is unlike a merger because it is only a temporary agreement for a specific purpose.
- Strategic Alliance: This is a partnership between two businesses to accomplish an ongoing goal, such as purchasing or producing a certain product at minimum cost to both companies. This is different from a merger because, even though the companies are working together, they remain two separate entities.
Mergers are often actually acquisitions. One business will usually purchase the other business, and then the two businesses will combine to form a new company.
For a small business trying to grow, merging with another company may be a more lucrative option than making an initial public offering (IPO), especially in an erratic market. A small business may instead put itself up for sale because being acquired could potentially be an economically safer long-term growth strategy.
For a business trying to enter into a new market, acquiring another business to merge with in that market can be a cheap alternative to a costly solo change in business strategy. Many businesses that are substantial in size choose to strengthen themselves by diversifying their product line, and acquiring and merging with other businesses is often the best way to do that.
There are many complexities and legal formalities to conducting mergers and acquisitions between businesses. If you own a business and are considering merging with another business, you will most likely want to consult a business attorney who has experience in acquisitions and mergers. Your attorney will let you know what kind of rules and regulations you must follow in the process, and make sure your interests are represented in any written contracts and other legal forms.
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