Mergers and Acquisitions: Legal Considerations for Successful Business Transactions

Canada is one of the ideal locations for those who want to establish and grow a business. It offers various opportunities for initiating a startup or a venture.

But do you know the best ways in which you can expand your company in the Canadian market? Well, let’s find the out the finest strategies to do so

This article will shed light on mergers and acquisitions. It will also showcase all the aspects involved in this procedure. 

You can also hire a Commercial Litigation Lawyer while you are planning for merging and acquisitions.

Now let’s start the journey for a successful empire.

Mergers and Acquisition

This term refers to the consolidation of companies or their major business assets via financial transactions between the organizations. 

A company can purchase and absorb another company and merge with it to create a new organization. They can also do the following things:

  1. Acquire all the major stocks of the company.
  2. Make a tender offer for its stock
  3. Hostile Takeover.

Factors involved in Mergers and Acquisitions

  • Strategizing a Private M&A Transaction:
  1. Structuring an M&A for a Private Firm:

The share purchase transactions and asset purchase transactions are the two common forms used to plan mergers and acquisitions of a private business.

In the former, the buyer purchases all the outstanding and issued shares of a corporation from its shareholders. 

An asset sale includes the negotiated purchase of the assets of a company without acquiring its owner. 

This purchase is normal when a party is interested in a single property or division or the new owner wants to control legacy liability exposure.

Buyers can also use other complicated M&A methods depending upon the circumstances.

For example, the buyer is targeting a large number of shareholders or option holders,,. In such cases, it is best to put a special arrangement under a relevant corporate statute to complete the acquisition.

Hybrid transaction is another alternative. In this method, the seller gets the benefits of selling shares and the buyer receives the advantages of buying assets.

For example, you can structure the transaction to help the buyer benefit from a step-up in the price base of assets that are tax-depreciable. 

At the same time, the seller still enhances it after cash tax proceeds from the transaction.

Buyers typically prefer asset transactions for tax reasons, whereas sellers prefer share transactions. Parties should also keep in mind that the former are more complex than the latter.

Asset transactions require parties to get a significant number of consents and a larger number of different assets.

However, asset transactions are only practical when the parties want to transfer only a few assets.

Furthermore, the due diligence required for a share transaction can increase pre-acquisition time frames.

  1. Due Diligence:

It is a process followed by a buyer to make itself familiar with the seller’s businesses and assets. 

Its scope generally varies depending on the nature of the business being acquired, its industry, and other legal considerations. The structure of the acquisition also influences due diligence.

Due diligence in a share transaction normally involves:

  1. A review of the seller’s corporate records.
  2. A review of any contract in which the seller has participated.
  3. Public searches in connection with corporate status and litigation.
  4. A review of the properties owned by the seller and their corporation.
  5. A review of central government records with respect to the seller that can be only accessed by their consent.
  6. Other diligence influenced by the nature of the seller’s business.

The buyer should review corporate records to check the number and types of issued shares of the seller. 

You can also get valuable insight into the sellers business after reviewing them. 

It will help you uncover potential liabilities that can be addressed before the closing of the acquisition.

Legal due diligence in an asset transaction is literally the same. The only difference is that it is focused on matters related to the acquisition or assumption of the assets.

Non-legal due diligence focuses on matters like finances, operations, management, administration, and tax/accounting. It is also undertaken in all acquisitions.

  • Regulatory Approvals:
  • Investment Canada Act and Competition Act:

Investments and acquisitions that exceed certain limits are reviewed under the Investment Canada Act and pre-notification under the Competition Act.

Canada M&A basically follows “free market” principles that require minimal involvement of regulations.

Investors should also consider other factors like tax, employment and labour, etc to effectively acquire an organization with the M&A methods.

Final Words

Starting a business in Canada is not that difficult as it was considered earlier. 

However, investors need to take necessary steps to ensure merging and acquisition of a business without any complications.

Apart from that, you also need the best legal guidance that will help you set up your business and expand it in the Canadian market.

With this, you can ensure a successful business transaction that will help you earn profits and grow your business further.

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