Michigan Business Lawyer Blog

The basic concept of a corporate merger is relatively straightforward. Put simply, when companies are merged, one company is folded into another company. The surviving company takes on all of the assets, liabilities, powers, rights, and obligations of the company that is merged into the surviving company.

To effect a merger, the shareholders and directors of each company to the merger must pass a merger plan under Section 701 of the Michigan Corporation Act. The merger plan must contain the primary terms of the merger. The kind of merger transaction that is used depends on which company will be the surviving entity when the merger is completed. Merger transactions include forward mergers, reverse mergers, forward triangular mergers and reverse triangular mergers.

If a merger transaction is properly structured, it will be treated by the IRS as a tax-free exchange pursuant to IRS Code Section 368.

Merger transactions must be adequately and properly documented. This documentation includes an agreement and plan of merger and a certificate of merger that must be filed with the state authorities. There may be other types of documents such as letters of intent, confidentiality agreements, bills of sale, legal opinions, and employment/consulting agreements.

Completing the legal requirements for a merger transaction requires specialized legal knowledge and skills. Any Michigan business taking part in a merger transaction should have the assistance of a Michigan business attorney to provide the necessary guidance to successfully complete the merger.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Sale/Purchase of a Business

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One of the advantages of acquiring a business through an asset purchase is that the assets are transferred to the purchaser free and clear except for enforceable liens and security interests. However, there is a doctrine that anyone contemplating an asset purchase should be aware of. It's called "successor liability".

Successor liability is an "equitable" doctrine that a court can apply when a strict application of the law would result in an injustice under the circumstances of a particular case. When a court imposes successor liability, a plaintiff with a claim against the seller of the assets will be allowed to assert that claim against the purchaser.

Successor liability can be imposed in a number of circumstances, including:

1. When the purchaser intentionally assumes the seller's liabilities.

2. If the asset sale is a fraudulent scheme for the seller to escape liabilities.

3. If the asset sale is a de facto merger of the seller and purchaser.

4. When the purchaser merely continues the business of the seller.

It is important for any Michigan business that is considering purchasing assets of another business to engage a competent Michigan business lawyer to thoroughly analyze the transaction so that it can be structured to avoid (to the extent possible) successor liability for the obligations of the seller.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: General Topics , Sale/Purchase of a Business

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It is the dream of practically every entrepreneur: build up their business and sell it for big bucks. In order to sell a business, the business owner has to talk with potential (or actual) suitors, negotiate the deal, and exchange certain information so that the parties can know whether the proposed sale is right for them.

Unfortunately, it is not uncommon for parties to go through these steps and decide for whatever reason not to pursue the deal, only for the seller to find out some time later that the former potential buyer is using the seller's confidential information shared during negotiations to unfairly compete against the seller. Fortunately, there is a way to legally protect the private and confidential business information of an entrepreneur who is contemplating selling their business.

The way to do that is to use a properly drafted confidentiality agreement. Before the parties finalize the sale of a business, the buyer will normally do an in depth investigation of the seller’s company. This investigation usually includes such subjects as customers, company finances, prospects for future business opportunities and sales, intellectual property, trade secrets, and other sensitive information. A well represented buyer will insist on being able to undertake this type of due diligence so that it can know whether the transaction is likely to work.

It is advisable (and completely accepted) in these types of transactions for the party requesting sensitive and confidential information to provide a signed confidentiality agreement to protect the party who provides the information. Generally speaking, a properly prepared confidentiality agreement will include a number of important provisions, with perhaps the most important one being an acknowledgment by the buyer that the seller will be entitled to injunctive relief if the confidential information is improperly used or disclosed.

The seller should ensure that the confidentiality agreement sufficiently details the nature and scope of the protected confidential information to ensure maximum protection for the seller. Finally, the seller should be very careful to make sure that the confidentiality agreement is not too onerous or unreasonably restrictive or the buyer could be discouraged from pursuing what might otherwise be a mutually beneficial deal.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Sale/Purchase of a Business

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