How to Merge Two Corporations
While mergers can create plenty of legal hurdles and fees up front, the resulting partnership often makes this investment of time and money worthwhile. Follow these steps to merge your business with another entity.
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Instructions
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Have boards of directors and shareholders of both companies approve the merger.
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File merger forms with your secretary of state. In most states, merging two companies into one is considered a simple reorganization and thus tax free. Check your state government's Web site to see if the form is available for easy computer download.
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Work with a corporate lawyer who specializes in mergers and acquisitions, also known as an M&A lawyer. Mergers usually require a great deal of back-and-forth from both sides in order to arrive at a situation that's acceptable to both parties.
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Incorporate mediation guidelines within the new business model to provide guidance in times of disagreement.
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Know that you will lose all the advantages of name familiarity of the company that will be absorbed by the new, parent company. Decide which company can better afford that loss.
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Prepare for the typical jockeying for position in management within the new firm, as roles are recreated.
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Know that it's easier to simply merge one of the existing companies into the other than it is to create a third, separate company. This saves you from having to create a new corporation before any of the merger transactions can be accomplished.
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Be aware that the creditors of the company that becomes subsumed into the other will still have claims against the new, postmerger corporation. Just because the name disappears doesn't mean liabilities disappear as well.
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Trade the stock from the earlier, separate companies for the stock of the new parent company.
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Tips & Warnings
The merger process usually happens over a period of months. In most cases, a number of meetings between the two business owners and lawyers will be necessary to iron out all of the details.
Mergers often alter the tax structure of the new corporation. Visit the IRS Web site (see Resources, below) to learn about your tax responsibility and download the necessary forms.
Merging two corporations can open you up to liability in the form of minority shareholders feeling edged out. Make sure you take the best interests of all shareholders into account when merging.
