What is the difference between a merger and an acquisition in San Diego or anywhere in California?  What do you need to know to protect your interests as a business owner, investor, shareholder, member in an LLC, or partner?  Does a merger or acquisition pose a risk to minority stakeholders of either company in these common business transactions?

Key takeaways on the difference between a merger and an acquisition:

1. There is a substantial difference between a merger of two or more entities and a business acquisition.
2. Each and every business owner, investor, shareholder, member, and/or partner involved in the transaction has their own unique interests that must be protected.
3. Mergers and acquisitions are often used to reduce or eliminate the interests of minority stakeholders.  These interests must be asserted and protected to ensure the value of their investment, their rights, and the interests they have before, during, and after any merger or acquisition.
4. Each stakeholder should have an attorney review all documents and each step of any proposed entity transaction.

Is There a Legal and Financial Difference Between a Merger and an Acquisition?

There is a substantial legal and financial difference between a merger and an acquisition here in San Diego and throughout the State of California.  In an acquisition, a “stock purchase” transaction occurs when one company acquires a controlling interest in, or all of the outstanding shares or membership interests of, the target LLC or corporation.

An acquisition may also be limited to specific assets of the target entity.  In these “asset purchase” transactions, the buyer is acquiring title to specific assets, including but not limited to: real estate, customers, inventory, vehicles, intellectual property, copyrights, patents, fixtures and furniture, software and other branded proprietary property, URLs or domains including websites and affiliated social media, accounts payable or receivable, or even corporate liabilities.

In a business merger, typically only one entity survives after the transaction is completed.  The other entity or entities must be legally dissolved.  All corporate liabilities and assets of the merged entities are transferred to the surviving entity.  These transactions usually require approval of existing shareholders or members of the corporate entities involved in the transaction.  However, there is a substantial risk for minority stakeholders, members, partners, and shareholders.

The value of a stakeholder’s position as a partner, member, or shareholder in any business merger may either be diluted or eliminated altogether, based on how the transaction itself is structured and the process required to approve the merger.  This is why it is essential to immediately seek the advice and counsel of experienced corporate attorneys at the Watkins Firm through a free, substantive consultation at 858-535-1511.

The Watkins Firm has protected the rights, interests, and investments of partners, members, investors, and shareholders for over 40 years.  A merger or acquisition poses substantial risks to all parties involved in the transaction.  This is especially true for minority stakeholders.

The good news is that stakeholders have specific rights under California law, and there is a substantial difference between a merger and an acquisition in terms of the rights of a partner, member, investor, or shareholder.  Each situation is unique, but there may be an opportunity to exercise rights such as “appraisal rights,” “Fair Value or Cash Out” rights, as well as the ability to enforce and pursue the fiduciary duty of majority stakeholders, and any breach of fiduciary duty, omission, deception or fraud associated with these complex business transactions.

Pro-Tip: “Shareholder and stakeholder disputes happen all the time. The better your agreement, the less likely you’ll be in a dispute, but a lot of times people get together because they know each other, they trust each other and they might not put down all the ‘what ifs’ in the future that might happen. And they end up in a fight.

There are a lot of things the stakeholders are going to be in disagreement over, and these vary widely, based on the structure of the transaction. But one universal thing we found after almost 40 years of doing it is once the company starts making money, people will naturally rationalize their position to allow them to make a larger share of that money. Once it starts making money it’s worth fighting over.

For example, we had a case a long time ago, nine or 10 doctors were working together in our medical practice. And our two or three doctors were worried about something. They came to us, and over that weekend, the managing members of the medical corporation took the entire practice, and moved. They changed its phone number, location, changed it’s mailing address and took all the money and assets and bank accounts. They didn’t even tell the other partners where they were going. Our clients showed up for work on Monday and there was no more work. The practice had disappeared overnight down the street to a different facility with instructions to keep them out. Unbelievable! So knowing something might be going on is the time to come to your lawyer so that we can do things to A) discover, whether there’s really something going on and B) there are remedies in the law that can stop that. And believe me, we did!

We want to get the facts down and we want the evidence our clients have in chronological order, because that’s the best way to communicate to the other party, to a third party, to anyone is in chronological order. That’s how we think. Then I want to help our clients analyze the damages. Whether you are feeling like they owe you something, they’re not complying with the agreement or vice versa. I also want something more from you than to work with us to analyze the damages, we need to analyze what it’s going to cost to fight. And also look at the future business. Whether we can salvage this relationship, all of those important things should come into play. We give good advice. We protect our clients and their interests.” – Dan Watkins, Founding Partner

If you are a stakeholder in any business entity, it is crucial to understand the difference between a merger and an acquisition, as well as how to protect your rights and financial interests in any merger, asset purchase, or stock purchase transaction.  The good news is you have rights, and it won’t cost you anything to open a conversation with an experienced California mergers and acquisitions and dispute resolution attorney at the Watkins Firm.  Draw on our 40+ years of proven experience, guidance, and counsel.  Learn about the risks you face, the opportunities you have, and how to protect and/or enhance the value of your holdings in any business entity transaction.

We invite you to review our podcast Episode 13 – Mergers and Acquisitions, as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.