Chapter 47.docx - BUSINESS LAW Chapter 47 Corporate Expansion State and Federal Regulation of Foreign Corporations and Corporate Dissolution 1 Corporate

Chapter 47.docx - BUSINESS LAW Chapter 47 Corporate...

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BUSINESS LAW Chapter 47 Corporate Expansion, State and Federal Regulation of Foreign Corporations, and Corporate Dissolution 1. Corporate Expansion Understand the four methods of corporate expansion: purchase of assets other than in the regular course of business, merger, consolidation, and purchase of stock in another corporation. Section Outline In popular usage, “ merger ” often is used to mean any type of expansion by which one corporation acquires part or all of another corporation. One method of corporate expansion is the purchase of assets of another corporation. o There are several advantages to an asset purchase, most notably, that the acquiring corporation can pick what assets and liabilities it wishes to acquire. o Another advantage of this method of expansion is that the acquiring company generally is not liable for the debts and/or lawsuits of the corporation whose assets it purchased, generally known as successor liability . When the assets of a company are purchased, the selling company itself may or may not go out of existence. By contrast, in a merger, the acquired company goes out of existence by being absorbed into the acquiring company. Consolidation is virtually the same as a merger. The companies merge, but the resulting entity is a new corporation. The fourth method of expanding, purchase of a company’s stock, is more complicated than the other methods. In a takeover , the acquiring company © 2017 FlatWorld 1
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BUSINESS LAW appeals directly to the target’s shareholders, offering either money or other securities, often at a premium over market value, in exchange for their shares. o In the case of closely held corporations, it is possible for a company bent on takeover to negotiate with each stockholder individually, making a direct offer to purchase his or her shares. Because it is impracticable and/or too expensive to reach each individual shareholder, the acquiring company must make a tender offer, which is a public offer to purchase shares. In fact, the tender offer is not really an offer at all in the technical sense; the tender offer is an invitation to shareholders to sell their shares at a stipulated price. o A tender offer or other asset purchase can be financed as a leveraged buyout (LBO) , a purchase financed by debt. o Under the federal Williams Act, upon commencement of a tender offer for more than 5 percent of the target’s stock, the offeror must file a statement with the Securities and Exchange Commission (SEC) stating the source of funds to be used in making the purchase, the purpose of the purchase, and the extent of its holdings in the target company. o Because officers and directors of target companies have no legal say in whether stockholders will tender their shares, many states began, in the early 1970s, to enact takeover laws.
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  • Spring '16
  • Lynda Campbell

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