The primary ways for a business to acquire another business include an acquisition of:
1. a business’ assets;
2. a business’ shares; or
3. by way of an amalgamation.
Asset Acquisition
The purchasing company acquires the target company’s (specific) assets and liabilities. These assets and liabilities are specifically listed in the asset purchase agreement. These acquisitions usually require certain formalities as each asset and liability that is being purchased must be transferred to the purchasing company. By way of example, a third party lender’s consent may be required if the financing contract contains an anti-assignment clause.
Share Acquisition
The purchasing company acquires the target corporation’s shares directly from the (selling) shareholders. Through the transfer of shares, the purchasing company acquires the target corporation’s assets and liabilities. Once the transaction is complete, the target corporation becomes a subsidiary of the purchasing company. During this process, the parties will negotiate and execute a share purchase agreement and the ancillary documents. Generally speaking, share acquisitions are usually simpler than asset acquisitions. However, the purchasing company should be aware of any change of control clauses that the target corporation may be bound by.
Amalgamation
An amalgamation, sometimes referred to as a merger, is when two or more corporations combine into one legal entity, and continue as one corporation. Upon the articles of amalgamation becoming effective, they are deemed to be the articles of incorporation for the amalgamated corporation. The amalgamated corporation becomes the successor corporation; therefore, the assets and liabilities of all predecessor corporations flow through to the amalgamated corporation, and the shareholders of each predecessor corporation become shareholders of the amalgamated corporation. The amalgamated corporation is not a new legal entity, but is simply a continuation of the amalgamating corporation – think of two streams that join and continue along as a larger river. The most straightforward way for an amalgamation is by way of an amalgamation agreement. Other avenues companies can take include a plan of arrangement; a triangular amalgamation; or a short form amalgamation.
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