Statutory Merger

A Statutory Merger involves the legal merger of two or more companies, where one of the company continues its legal existence, while the other company or companies are absorbed by the former.

Overview of a statutory merger

In a statutory merger between two different companies (where company A merges with another company B) one of the two companies will continue to survive after the transaction has completed.

For example, Company B may lose its independent identity and begin to operate under the name of Company A. The whole operation of the statutory merger takes place in accordance with the provisions of corporate laws of the state. Any contravention whatsoever is considered illegal. The surviving company acquires the assets and liabilities of the merged entity. This causes the merged entity to become defunct.

A merger and an acquisition are similar in nature and the difference between the two is very subtle. An acquisition, the acquiring company survives and do does the target.

 

Benefits out of a Statutory Merger

Organizations may consider mergers with other organisations to maximize financial and organizational efficiencies, or sometimes to beat competitors. Mergers often come with conflicts. But the benefits can override initial difficulties. The shareholders of both the companies which have undergone the M&A process are compensated for their assent to the process. The shareholders either are (a) paid for their shares or (b) receive shares of the merged company.

 

Legal Requirements, Procedures & Conditions

Firstly, conditional laws for mergers are set by corporate law. Secondly, the board of directors of each corporation must give their approval for the merger. Thirdly, the shareholders of each company must approve the merger through their voting rights. Lastly, after all legal formalities are done, mergers are approved by the authorities. The whole process is long and may take months.

A shorter form is possible in the case of a merger between a parent company and a subsidiary. Additionally, proper due diligence should be carried out to avoid unanticipated material liability.

The shareholders also can also exercise their appraisal rights. This is a legal right of the dissenting shareholder who might object to an extraordinary transaction and want:

  • To have his shares of the Pre-merger Corporation appraised; or,
  • To be paid the fair market value of his or her shares by the pre-merger corporation.

A statutory merger may have been carried out for the best interest of either the entities, their members or other constituencies.

 

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