Most of the companies that are sold in the Texas I practice areas (I represent buyers and sellers of companies as their lawyer) are structured as asset sales. I am talking about main street businesses (revenues less than $2 million) and lower-middle-class stores (less than $10 million). Although this is not common for small businesses, I see more often mergers with mergers involving large companies, including state-owned enterprises. As a general rule, the courts deal with certain factors in determining the concentration of de facto. First, the operation of the sales business must be continued with continuity of management, personnel, physical location and general activity. Second, there must be some continuity of shareholders, partners, members or other owners. Originally, the doctrine of de facto merger required that the shareholders of the sales company become shareholders of the purchaser after the transaction was completed. Third, the selling company must cease operations and dissolve. Fourth, the buyer must assume the normal obligations of the seller that are necessary for the sustainability of the transaction. A merger consolidates two companies, which are different legal entities, into a single legal entity that holds the combined assets and liabilities of the original companies.
With respect to the most common type of merger, a “reverse triangular merger,” a buyer creates a 100% subsidiary (a “sub merger”). In conclusion, the shares of your company`s shareholders are cancelled against “the merger,” usually in cash or shares issued by the purchaser. The merger merges into your business and ceases to exist as a stand-alone entity, and your business “survives” – now as a wholly owned subsidiary of the buyer. Buyers should consider including additional safeguards in the asset purchase agreement if the context warrants it. In addition to the seller`s insurance and guarantees, a buyer might consider requiring a portion of the purchase price from the seller for several years as a guarantee for successive liability risks. The strong language of the contract is great, although it is as good as the company or the person who opts out on the language. In the event of a small main street store being sold, it is not scandalous that sellers disappear in retirement or simply do not have the money later to secure the things they represent in the asset sale contract. Buyer`s AccountingThe public accounting firm is made up of accountants who are responsible for serving businesses, individuals, governments and non-profit organizations through accounting, and tax documents must reflect assets and liabilities at fair value.
Although this article used the term “share sale” to describe the main alternative to asset sales, it should be noted that another common transaction structure, a merger, offers another alternative.