merging businesses

Why You Need A Lawyer When Merging Businesses

Linkilaw Premise Locations & Leasing, Shared Resources, Startup Advice & Tips

A merger (also known as consolidation) is a process by which two companies join and create an altogether new company. Much like a marriage, a merging businesses is a sizeable undertaking in which both parties have to put a lot at stake.

There is a lot you need to know and keep an eye on if you’re looking to sell your company, and even more if you’re looking to buy a business. Granted, the benefits are aplenty if everything goes right, but not everyone involved in the merger has enough knowledge and skill to see the whole deal through and ensure a “happily ever after”.

This is where a legal professional specialising in merger and acquisition law comes into the picture. In today’s blog post, we give you a brief breakdown of why you need a corporate lawyer when merging businesses.

A competent M&A lawyer will:

Make Sure The Merger Is Compliant With The Law

When it comes to complex and expensive business processes, like mergers often are, one can feel intimidated by the imposed regulations and procedures to be followed. However, these laws and regulations have been put in place with the sole aim to protect shareholders and stakeholders, as well as to prevent the possibility of malpractice.

European Union merger law is the main law that regulates if firms in the EU can merge with one another and under what conditions. In some less competitive industries, a grand-scale merger can eat up a great chunk of the market and potentially even monopolise it. To nip these harmful efforts in the bud, states have installed a regulatory legal framework or the so-called competition laws.

Another situation in which a proper legal service is indispensable is if the merger occurs between two companies whose headquarters are in different countries. In such instance, different rules may apply. In addition, cultural norms and language barriers can further hinder the process. It’s a delicate undertaking, but one that is definitely doable – and if executed correctly, it can be potentially very profitable for your new company. Here you can find all regulations outlined for cross-border mergers (please note it applies only to companies registered in the UK).

A good merger lawyer will study the nuts and bolts of the legal groundwork: all to make sure due procedures are being followed and that your professional interests are being looked after at every stage of the process.

Regulate Due Diligence

With every purchase transaction, all liabilities from both parties must be clearly listed. In this stage, a lawyer also has to verify the claims made by vendors are correct. To put it in other words, a lawyer needs to conduct somewhat of a background check, and ensure the target business has all its legal ducks in a row.

The buyer, understandably, wants to know what they’re buying. As Richard D. Harroch and David Lipkin explain for Forbes: “Before committing to the transaction, the buyer will want to ensure that it knows what it is buying and what obligations it is assuming, the nature and extent of the target company’s contingent liabilities, problematic contracts, litigation risks and intellectual property issues, and much more.

This is particularly true in private company acquisitions, where the target company has not been subject to the scrutiny of the public markets, and where the buyer has little (if any) ability to obtain the information it requires from public sources.”

Due diligence means obtaining proof of financial health; ownership of property, intellectual property, technical equipment, etc.; reviewing if there are any current or pending legal cases; checking the company’s contractual obligations and material contracts towards its employees and stakeholders; assessing the firm’s customer base; getting an overview of insurance policies, tax matters, etc. Quite reasonably, the DIY approach will not take you very far; only a skilled legal professional can conduct the due diligence check.

Help Facilitate The Consolidation When Merging Businesses

When two companies amalgamate into one, it is absolutely necessary to ensure a fair treatment of everyone involved. To name one thing, a merger will probably result in duplicate departments and operations and (not always, but possibly) a certain number of employees laid off. Needless to say, you will need a competent and trustworthy lawyer by your side to deal with termination of contracts and handle any issues that may arise around severance pay.

Summary: Merging Businesses With A Competent Lawyer

To sum it up: a competent M&A lawyer will, “ assist their clients with the appropriate financing for mergers and acquisitions and provide advice concerning the drafting, negotiation, and performance of contracts for the sale of portions of the business.” 

All in all, merging businesses implies a lot on your already full entrepreneurial plate. A great corporate lawyer and trusty confidante will help you through every step of the way and make the process a whole lot easier. We can help you find that person at an affordable price, so why not contact us and get a free quote.

UK dronecode

Comments

comments