Commercial transactions involving corporations are very common and are often implemented to increase profits or efficiency, to rapidly grow a business, for tax benefits, or to address financial trouble.
Below are some of the more common forms of commercial transactions, simplified and explained:
Mergers & Acquisitions
A merger (or an amalgamation) generally refers to a transaction where a company acquires another company and amalgamates to form a new entity. Following a merger, both companies that existed prior to the merger cease to exist and a new entity is formed by the amalgamation of the predecessor entities.
By contrast, acquisition often refers to a transaction whereby the acquired company becomes a part of the purchasing entity but does not necessarily amalgamate to form one entity.
There are several benefits to either a merger or acquisition including rapid growth, economies of scale, and diversification. These deals, particularly larger ones, may be subject to scrutiny under Canadian antitrust laws.
Corporate Buyout
This refers to a transaction where one company acquires a controlling interest in another, often so that the buyer can make decisions about how the acquired company is operated. Targets of buyouts are typically underperforming companies. For small businesses, this is also a common option when the owner is planning to retire.
Divestiture
This generally refers to when a company sells off part of its business either to another company, or to stakeholders who will create a new entity (i.e. a spin-off). This may occur because the corporate focus has shifted, or because part of the business was diverting resources from the company’s priorities or higher revenue activities.
Thinking about doing a commercial transaction, or do you have more questions? Our team of business lawyers would be happy to help. Contact us today.
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
