Mergers and acquisitions are fraught with danger. In fact, most of them fail. According to a study by KPMG, 83% of mergers fail to boost the profits for shareholders, a massive fail in business terms.
There are so many varying degrees of complexity involved with any merger of two companies so it’s not surprising that the number is so high. There are many legal complexities involved and this is just one aspect of a merger.
There are a ton of legal forms that need to be filled out and submitted correctly. There are different laws to navigate and deal with market laws and more. There is restructuring the company which affects shareholders, investors, taxes, and more.
Navigating a merger and acquisitions is not something you should do on your own. In fact, doing so will probably cause your head to explode with overwhelming and frustrating.
After reading this post, you’ll see why you need a Mergers and Acquisitions Lawyer.
Different Legal Frameworks Globally
Merging two companies in one country is always difficult, however, many mergers don’t actually involve two companies registered to operate in the same country. This means that there are different laws and operating procedures for both the companies because they’re under the jurisdiction of their particular nation.
Merging with a company that’s registered in another country just adds another layer of difficulty to the merger. This is where a Mergers and Acquisitions Lawyer will become your best friend.
When two companies are merging that are operating in different markets and under different jurisdictions, this affects the structure of the company. Now the company needs to be registered as a corporation in one country. However, the other company can remain as a subsidiary of that company and remain registered in its home country.
But, this creates a whole separate range of legal issues regarding the structure of the company because there are separate jurisdictions involved. This is just for companies operating in different countries that want to merge.
This doesn’t mean that the legal framework doesn’t change if both companies operate in the same country. It does, but it’s certainly a little easier to navigate legally when you’re only dealing with the one jurisdiction.
Implications On Paying Tax
The merger of two companies has tax implications because it can either be tax-free or taxable. It really varies based on where the corporation will be registered and the jurisdiction it operates under.
There are also some slightly complex scenarios that can unfold where a portion of the sales from the merger can be tax-free and another portion contributed to tax. Each merger will be unique and face their own complications for good or for worse.
The new business structure as a corporation now means that taxes will also change. Tax rates will vary based on what country the business is primarily operating in so it needs to be established upfront what taxes are required to be paid.
It should go without saying that you never mess with the tax man no matter what country you’re in to make sure this area is watertight shut.
Restructuring The Business
A merger involves taking two companies and in most cases, restructuring them as a corporation. However, this restructuring involves a lot of complex legal issues regardless of whether it involves one country or more.
Structuring the corporation affects tax as was mentioned in the previous point so now measures need to be taken to ensure that everything is watertight on that front. You don’t want to end up paying the wrong amount of tax because your legal foundations weren’t secured during the transition into a corporation.
Structuring the company as a corporation now means that share provisions of that business need to be organised. There are many complex issues related to this such as dividing shares amongst the various shareholders, liabilities, dealing with investors, and much more. Any profits made from shares also need to be taxable so this is another area that needs dealing with.
This restructure also affects liabilities as well especially those towards your investors, shareholders and employees. This all needs to be organised upfront to avoid any potential negative ramifications in the future.
Deal With Complex Paperwork And Ensure You’re Legally Compliant
There is going to be a lot of complex paperwork that needs to be filled out for a successful merger. There are forms relating to all aspects such as the transaction sale, restructuring the company, investor funding, legal jurisdictions the business is registered in, and plenty more.
Each of these areas requires complex legal paperwork that will be way over your head unless you already come from a legal background. If the paperwork required is not filled out and submitted correctly, you’ll find yourself on the end of some hefty fines.
The merger may also mean that there are now more things you’d like to protect intellectually. Perhaps there will be patents that need to be registered, trademarks, and more. The merger is a big move that involves shareholders, investors, as well as people working in the business.
The only way to successfully navigate all of this legally and ensure everything is legally sound is to have the best team possible serving your best interests. Without it, you’ll find loopholes will develop that could potentially cost the business hundreds of thousands of dollars of losses in profit.
To say that having the paperwork filled out and submitted properly is important is a massive understatement.
Mergers and acquisitions are never easy and the legal matters involved with it are incredibly complex. We’d recommend that you always seek expert legal help with your merger because we can guarantee you that there will be many issues involved that you won’t understand, yet alone be able to deal with on your own.
So it’s essential you get the right legal team in place to deal with all the legal formalities associated with it. If you need a Mergers and Acquisitions Lawyer, then don’t hesitate to get in touch with us to find out more.