Mergers: legal implications when consolidating your entity
Both mergers and acquisitions are mechanisms used to combine two corporations together. In the case of a merger, or amalgamation, two corporations get together and continue their combined operations as a new, third entity. In an acquisition, one corporation purchases the other and absorbs the resources and functions of the purchased corporation.
Both Alberta’s Business Corporations Act and the Canada Business Corporations Act use the term “amalgamation” rather than “merger.” Businesses can be incorporated under either federal or provincial legislation, so the procedures for merging two or more businesses may vary depending on which legislation applies.
Benefits of merger or amalgamation
What are the possible benefits of merging your business with another? There are a number of reasons for amalgamating two corporations, including:
- combining complementary resources, products or services to improve the client experience
- improving efficiency and lowering overhead expenses
- obtaining access to a new market or geographical area
- scaling up the manufacturing processes
- avoiding duplication of services.
If you are not sure whether an amalgamation is the best move for your business, our corporate and commercial lawyers are here to help you understand mergers and the legal implications when consolidating your entity.
Short-form and long-form amalgamation
A long-form amalgamation requires the two corporations to sign an amalgamation agreement, which must be approved at a shareholder meeting. The amalgamation agreement sets out the terms of the proposed amalgamation and must contain specific provisions. If the proposal is approved by the shareholders, the articles of amalgamation of the new corporation must contain the provisions that were agreed on as set out in the amalgamation agreement.
A short-form amalgamation is only available to related corporations that wish to merge. A vertical short-form amalgamation can take place between a holding company and a wholly-owned subsidiary. A horizontal short-form amalgamation can take place between two or more wholly-owned subsidiaries of the same holding company. These amalgamations can often be done quickly and easily as they can be approved by a resolution of the directors and the articles of incorporation remain the same as one of the amalgamating corporations.
Legal considerations for merging businesses
In addition to ensuring that the formal requirements for amalgamation are met, a corporate and commercial lawyer can help you to understand the other legal implications that might be relevant to your merger, including:
- tax considerations
- employment, labour and pension law considerations (particularly if the merger will result in redundancies in your work force)
- securities law considerations
- competition law considerations.
Mergers of two or more companies are generally thought to benefit Canadian consumers by increasing competitiveness. Many of the benefits of amalgamation listed above result in better service, better products or better prices for clients and customers. However, the Competition Bureau of Canada has the jurisdiction to review mergers to ensure that they don’t result in reduced competition in a given market. If the Commissioner of Competition has concerns about the effect of a particular merger on competition, they can apply to the Competition Tribunal for an order to stop, dissolve or change the terms of the merger.
Contact our corporate and commercial lawyers today to learn more about mergers and the legal implications when consolidating your entity.