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Business combination



Definition

Throughthemerger,thepropertyofmultiplecompaniesbeforethemergerbecomesthepropertyofonecompany,andmultiplelegalpersonsbecomeonelegalperson.Businesscombinationisthebasicformofcapitalconcentrationandthusmarketconcentration.InJapanandEuropeanandAmericancountries,businessmergersareconsideredreasonableaslongastheydonotbringaboutmonopolydisadvantagesandareevenencouragedbygovernmentpolicies.However,businessmergersthatmayleadtomonopolywillbeinterferedbyanti-monopolypolicies.

Legalfeatures

1.Thepartiestoabusinessmergerarethecompanyitself,notthecompany’sshareholders.

Asacivillegalact,thepartiesarethecompanyitself,notthecompany’sshareholders.

2.Businessmergersmustbecarriedoutinaccordancewiththelaw.

Businessmergersinvolvetheinterestsofshareholdersofrelatedcompanies,creditor’srights,andmaybeassociatedwiththetransferofownershipofstate-ownedassets.Themergermustberegulatedinaccordancewiththelaw.Forspecialtypesofbusinessmergers,inadditiontoenteringintoamergeragreementinaccordancewiththelaw,theapprovalofrelevantdepartmentsisalsorequired.

3.Businesscombinationisanagreementact,notanadministrativeact

4.Thetypesofcompaniesinbusinessmergersarerestricted

Thecompanylawsofmostcountriesadoptacategory-restrictivedoctrineforcompanymergers,requiringthatonlycompanieswithsimilarformsofliabilitycanbemerged.Afewcountriesorregionsadoptnon-restrictivedoctrine,andthemergercanbemergedregardlessoftheformofliabilityofthemergedcompany.

Classification

1.AccordingtothestandardclassificationintheChineseEnterpriseMergerStandards

1)Mergersofenterprisesunderthesamecontrol:Theenterprisesparticipatinginthemergerareultimatelycontrolledbythesamepartyorthesamemultiplepartiesbeforeandafterthemerger,andthecontrolisnottemporary.

a.Concept:Thepartiesinvolvedinthemergerareultimatelycontrolledbythesamepartyorthesamepartiesbeforeandafterthemerger,andthecontrolisnottemporary.

b.Features:

①Theinitialinvestmentcostisbasedontheshareofthebookvalueoftheowner’sequityofthemergedpartyobtainedonthemergerdate.Thedifferencebetweenthebookvalueofthenetassetsacquiredbythemergingpartyandthebookvalueofthecombinedconsiderationpaid(orthetotalparvalueoftheissuedshares)shallbeadjustedtothecapitalreserve(capitalpremiumorequitypremium);thecapitalreserve(capitalpremiumorequitypremium)shallnotbeoffsetIfitisreduced,adjustretainedearnings.

②Alldirectrelatedexpensesincurredbythemergingpartyforthebusinesscombination,includingauditfees,evaluationfees,legalservicefees,etc.paidforthebusinesscombination,shouldbeincludedinthecurrentprofitsandlosseswhenincurred.

2)Businesscombinationnotunderthesamecontrol:theenterprisesparticipatinginthecombinationarenotultimatelycontrolledbythesamepartyorthesamemultiplepartiesbeforeandafterthemerger.

Concept:Thepartiesinvolvedinthemergerarenotultimatelycontrolledbythesamepartyorthesamemultiplepartiesbeforeandafterthemerger.

2.Accordingtointernationalstandards,themarketrelationshipofenterprisesbeforethemerger

1)Horizontalmerger(alsoknownashorizontalintegration).Thetwoormorepartiesofthemergedenterpriseoriginallybelongedtothesameindustryandproducedsimilarproducts.

2)Verticalintegration(alsocalledverticalintegration).Thetwoormorepartiesofthemergedenterprisehavearelationshipofrawmaterialproduction,supply,processingandsales,andtheyareindifferentstagesoftheproductionandcirculationprocess.Verticalmergersarethebasicmeansforlargecompaniestofullycontrolallaspectsofrawmaterials,production,andsales,andtoestablishaverticalintegrationcontrolsystem.

3)Conglomeration.Ahorizontalmergerandaverticalmergeroccuratthesametime,orthetwoormorepartiestothemergerareenterprisesthathavenorelatedindustries.Thelattertypeofmergeroftenoccurswhenacompanyinacertainindustrytriestoenteranotherindustrywithahigherprofitmargin,andisoftenassociatedwiththecompany'sdiversificationstrategy.

3.Accordingtointernationalstandardsandlegalform

1)Mergerbyabsorption(alsoknownasMerger)referstothemergeroftwoormorecompaniesintoonecompany,andonecompanymergesanothercompanyormultiplecompaniesAbsorbedintoitsownenterpriseandcontinuetooperateinitsownname,whiletheabsorbedenterpriselosesitsstatusasalegalpersonafterthemerger,dissolvesanddisappears.

2)Consolidation(Consolidation,alsoknownas"NewConsolidation"inChina's"CompanyLaw"),referstothemergerofseveralcompaniestoformanewcompany.Inotherwords,afterthisformofmerger,alltheoriginalenterprisesceasedtoexistandwereoperatedbynewenterprises.

3)AcquisitionofMajorityInterest(AcquisitionofMajorityInterest,“Acquisitionforshort)referstoacompanythatpurchasesorobtainsanothercompany’svotingsharesorcapitalcontributioncertificates,andhasreachedcontrolofthelatter’soperationsTheformofbusinesscombinationwiththeshareholdingratioofthefinancialpolicy.

4.Motivationformergeraccordingtointernationalstandards

1)Goodfaithmerger(alsoknownasFriendlyMerger)meansthatthemergedcompanyagreestothemergerconditionsproposedbythemergedcompanyandpromisestoprovideassistance.Therefore,theseniorleadersofbothpartiesnegotiateDecideonthespecificarrangementsforthemerger,suchasthemethodofmerger(incash,stocks,bonds,oramixofthem,etc.),mergerprice,personnelarrangements,assetdisposal,etc.Sincebothpartiestothemergerhavemergerintentionsandaremorefamiliarwitheachother'scircumstances,thesuccessrateofsuchmergersisrelativelyhigh.Thistypeofmergerisbasedonagreement,soitisalsocalled"agreementmerger".

2)Maliciousmerger(alsoknownashostilemergerorforcedtakeovermerger,HostileMerger)referstothesituationwherethemergedcompany’smanagementdoesnotknoworopposethemergerintentions.Theactofforciblymergingthemergedcompany.

5.Internationalstandardpaymentmethodsformergers

1)Cashmergermeansthatthemergingpartypayscashinexchangefortheownershipofthemergedcompany.Thecashmergermethodcanbeexpressedastheuseofcashtopurchaseassets(Cash-for-Assets)andtheuseofcashtopurchasestocks(Cash-for-Stock)

2)StockmergermeansthatthecombinedcompanyadoptsanincreaseintheissuanceofthecompanyThestocksachievethepurposeofconsolidation.ItcanbeexpressedasStock-for-AssetsandStock-for-Stock

Purpose

Themainmotivationsformergersbetweenenterprisesare:

1.Speed​​upthedevelopmentofenterprises,suchastoexpandmarketshareassoonaspossible;

2.Diversificationofmanagementandproduction;

3.Controlrawmaterialsandresourcestogaingreatermarketpower;

4.Realizeeconomiesofscaleandorganizemassproduction;

5.Obtaintaxandfinancialbenefits.Thismotivationisrelatedtogovernmentpoliciesandpoliciesoffinancialenterprises;

6.Absorbtechnologyandmanagementcapabilities,suchaspurchasingacompanythatmastersthistechnologyinordertoobtainacertaintechnology;

7.Reliefforpoorlymanagedenterprises;

8.Itisconvenienttoarrangepersonnel.

Development

Westerndevelopedcountries

Sincetheendofthe19thcentury,Westerndevelopedcountrieshaveexperiencedfourmajormergerwaves.

Thefirsttimewasfromtheendofthe19thcenturytothebeginningofthe20thcentury;

Thesecondtimewasfromthe1920stothe1930s;

ThethirdtimewasAftertheSecondWorldWar,itwasmainlyfromthe1960stotheearly1970s;

Thefourthtimewasinthe1990s.

Domestic

1.Thefirsttimewas1949-1965afterthefoundingofNewChina.

Thisperiodexperiencedthreemergerstages:1949-1956.ThemergerinthisperiodwasmainlyduetothesocialThemergerofprivateindustrialandcommercialenterprisesbythepublic-ownedeconomyofarevolutionarynature;administrativemergersbetween1961-1962;and1963-1965,thegovernmentpilotedlargetrust-styleenterprises.

2.Thesecondtimewasthereformandopeningupsincethe1980s.

Twoprocesseshavebeenexperiencedduringthisperiod.Oneisspontaneousbusinessmergeractivities,andtheotherisorganizedandguidedbusinessmergeractivities.ThemergerofenterprisesappearedearlierinBaodingandWuhan.Thecharacteristicisthatthegovernmentsofthetwoplacesadoptdifferentadministrativeandmarketcoordinationmethodstorealizethemergerofenterprisesaccordingtothecharacteristicsoftheregions.Bythe1990s,businessmergerswerenotonlydiverseinforms,butalsounprecedentedinscale.

Bytheendof1993,ChinaNationalChemicalImportandExportCorporation(“Sinochem”),ChinaInternationalTrustandInvestmentCorporation(“CITIC”)andCapitalIronandSteelCorporation(“Shougang”)werethreeMultinationalcompaniesrecognizedbytheinternationaleconomiccommunity,theymainlyrealizetheirtransnationaloperationsthroughmergers.Forexample,inNovember1992,ShougangacquiredthePeruvianIronOreCompanyforUS$120millionthroughparticipationininternationalbidding,andestablishedShougangPeruIronOreCo.,Ltd.,becomingChina'slargestoverseasinvestmententerprise.

Procedure

Conclusionofthemergeragreement

Themergeragreementisthebasisforthemergerofthecompany.Itisthemergerbetweenthepartiesparticipatinginthemergeronthebasisofequalnegotiation.Relatedmatterssuchas:themethodofmerger,theorganizationoftheexistenceorcreationofthecompany,thearrangementofthecreditor'srightsanddebtsoftheparties,andotherwrittenagreementsreached.Aftertheconclusionofthemergeragreement,itdoesnottakeeffectimmediatelyandmustbeapprovedbytheshareholders'meeting.Acompanylimitedbysharesmustbeapprovedbytherelevantcompetentauthoritybeforeitbecomeseffective.Therefore,themergeragreementisakindofciviljuristicactwiththeconditionsforstartingapublication.ApprovalofthemergeragreementBusinessmergersarerelatedtoshareholders'rightsandinterestsandmustbeapprovedbythegeneralmeetingofshareholders.AccordingtotheprovisionsofArticles38,39and103,106ofChina's"CompanyLaw",therelevantbusinesscombinationisamajorcompanymatterandspecialvotingproceduresapply.Alimitedliabilitycompanymustbeapprovedbyshareholdersrepresentingmorethan2/3ofthevotingrights.Thecompanymustbeapprovedbymorethan2/3ofthevotingrightsheldbyshareholdersattendingthemeeting.Inaddition,amergeragreementinvolvingajointstocklimitedcompanymustbesubmittedtothedepartmentauthorizedbytheStateCouncilortheprovincialpeople'sgovernmentforapproval.

Preparationofthebalancesheetandpropertylist

Thebalancesheetisthemainaccountingstatementthatreflectsthecompany’sassetsandliabilities,andshareholders’equity.Thebalancesheetisastatementthatmustbepreparedinabusinesscombination.Thecompanymustalsocompilealistofassets,inordertoclearlyreflectthecompany'spropertystatus,itshouldbeaccurateandaccurate,sothattheaccountsareconsistent.

Performthecreditorprotectionprocedures

Inordertoprotecttheinterestsofthecompany’screditors,thecompanylawsofvariouscountriesprovideforcreditorprotectionmeasuresinthebusinessmergerprocedures.Thatistosay,aftertheenterprisemergerresolutionismade,thereisanobligationtonotifyorannouncecreditorsinatimelymanner.Withinthestatutorytimelimit,thecreditorhastherighttoobjecttothemergeroftheenterprise.Enterprisesmustpayoffdebtsorprovideguaranteestocreditorswhoraiseobjectionswithinthestatutorytimelimit.Ifnoobjectionisfiledwithinthetimelimit,itshallberegardedasatacitconsenttothebusinesscombination.

Handlingmergerregistration

Accordingtothebirthanddeathchangesofdifferentcompaniesinthemerger,mergerregistrationcanbedividedintothreesituationsforbusinessregistration:

1.Setupregistration.Enterpriseestablishmentregistrationisaprerequisiteforanenterprisetoengageinbusinessactivities,anditisnotallowedtoengageinbusinessactivitiesunlessithasbeenregisteredforestablishmentandobtainedabusinesslicense.

2.Changeregistration.Thecompletionofthemergeroftheexistingenterprisehascausedmajorchangestoitsshareholders,company’sarticlesofassociation,andcapitalstructure,andrequiresregistrationofchanges.

3.Cancellationofregistration.Regardlessofwhetheritisanewmergeroramergerbyabsorption,itmustleadtotheeliminationofthequalificationsofoneormoreofthecompaniesinvolved.ThisisalsooneofthestatutorydissolutionsituationsstipulatedinArticle109ofChina's"CompanyLaw".Therefore,itisnecessarytoapplyforcancellationofregistrationwiththeadministrativedepartmentforindustryandcommerce.

Currentissues

(1)Thereareloopholesinthelegislation

RegularandorderlybusinessmergersrequiresoundlawsandregulationsAsapackage.Althoughthemergerofenterpriseshasalonghistoryinmycountry,ithasbecomeanimportantmeasureforthereformofstate-ownedenterprisesatthisstage.However,thelawsandregulationsonbusinessmergersarestillfarfromperfect.Thecurrentmergerlegislationdoesnotprovideformanymergersystems,andmanymergerregulationsareonlyscatteredinthe"CompanyLaw","BankruptcyLaw"andotherlawsandregulations.Forexample,theNationalOwnershipIndustrialEnterpriseLaw,theCollectiveEnterpriseRegulationsandotherimportantsystemsdonotprovidefortheformofmerger,theeffectivenessofthemerger,thespecificproceduresofthemerger,andtheprotectionofthecreditorsofthemerger.Eventhecompanylaw,whichhasmoreregulationsonmergers,alsolacksregulationsonsomemajorissues,suchasmergercontracts,protectionofdissentingshareholdersinmergers,mergerconsiderationandmergerpayments,andsimplemergers.Inaddition,thereisnoanti-monopolylegislationinourcountrysofar,anditisdifficulttopreventtheemergenceofmonopolyissuesinmergers.

(2)Legislationisnotuniformorevencontradictory

Inourcountry,companiesusedifferentcorporatelegislationaccordingtodifferenttypes.Theenterprisemergerlegislationisincludedinthecorrespondingenterpriselegislation,whichresultsinseparatelegislationforenterprisemergers.Thislackofcoordinationinseparatelegislationhasresultedininconsistenciesandevencontradictions.Thisconfusionismainlymanifestedinthefollowingaspects:(1)Differencesintheconceptandformofbusinessmergers.Accordingtocompanylawsandregulations,theformsofcompanymergersaremergersbyabsorptionandmergersbynewestablishments.Inmergerbyabsorption,onecompanyisdissolvedandtheothercompanycontinues;inanewmerger,allpartiestothemergeraredissolved.The“InterimMeasuresonEnterpriseMergers”,adepartmentaldocumentapplicabletonon-corporatestate-ownedenterprises,stipulatesthatenterprisemerger“referstoanactthatanenterprisepurchasesthepropertyrightsofotherenterprises,causingotherenterprisestolosetheirlegalpersonalityorchangetheirlegalentities."Obviously,the"merger"hereincludesthecontentofabsorptionandmergerinadditiontothetwotypesofmergersstipulatedbythecompanylaw.Inaddition,the"InterimMeasures"alsostipulatesthatenterprisemergersincludefiveforms:debtobligation,purchase,shareholding,andholding.Thedifferentprovisionsofthelegislationonthenatureandformofthemergerhavecausedambiguitiesinpeople'sunderstandingofthemerger,leadingtotheambiguityoftheconceptofcontractclausesinmergeraffairs.(2)Differencesinthedecisionofbusinesscombination,approvalrequirements,etc.Someregulationslackrationality.Consideringtheprinciplesofbalancingtheinterestsofthestakeholdersinvolvedinthemergerandtakingintoaccounttheprinciplesoffairnessandefficiency,thecurrentmainlawinvolvedinthemerger—thecompanylaw,stillcontainsunreasonablefactors.Forexample,withregardtobalancingtheinterestsofshareholders,oneisthatthereisnoprovisionforsimplemergers,whichisnotconducivetotheprotectionofmajorityshareholdersandtheimprovementoftheefficiencyofthemerger;theotheristhatthereisnoprotectionfordissentingshareholders(thatis,therightofdissentingshareholderstorepurchaseshares).Regulations,thisisnotconducivetotheprotectionofminorityshareholdersandtheprincipleofequityinmergers.Anotherexampleistheprocedureforprotectingcreditors'rights,whichstipulatesoverlycumbersomeproceduresfortheannouncementofaconsolidatedcompanyandoverlystricteffectsofcreditors’objections,whichisnotconducivetoareasonablebalanceoftheinterestsofcreditorsandshareholders,andalsodetrimentaltotheboundariesandefficiencyofthemerger.

(3)Themarketisimperfect,theintermediaryinstitutionsareunderdeveloped,thegovernmenthastoomuchadministrativeintervention,andthebusinessmergermechanismisdifficulttoreallyplayarole

Intheprocessofbusinessmerger,Somegovernmentactionsarenecessary.Becauseunderthecurrentsystem,manyactionsarecompletelycompletedbytheenterprisesthemselvesandthereisnocorrespondingmechanism,thegovernmentcanpromotethemergerofenterprisestoacertainextent.However,atpresent,thegovernmenthasblindlyinterferedtoomuchinbusinessmergers,andsomecorporateauthoritieshaveforcedbusinessmergersto"allocate",whichseriouslyviolatesthebasiceconomiclawsofbusinessmergers.Onereasonforthissituationisthatthemarketforcorporatepropertyrightstransactionsisnotsound.Whenabusinessmergeriscarriedoutonthebasisofthemarket,itisalsoacapitalmovement.Withoutadevelopedandopenpropertyrightstradingmarketandcapitalmarket,businessmergersareboundtobeverydifficult.Atthesametime,intermediaryagenciesalsoplayaveryimportantroleinbusinessmergers.Corporatemergersusuallyrequiretheinterventionofhigh-levelintermediaryagenciestoprovideinformationandconsultation,matchmaking,andfinancialsupportforbothpartiestothemerger.mycountry'scurrentparticipationinbusinessmergerintermediaryagenciesisverylimited,mainlymanifestedin:lowamountofinformation,weakconsultingservicefunction;lowprofessionalqualityofpersonnel;themainbusinessofintermediaryagenciesislimitedtofinancialauditing,assetevaluationandlegalconsulting.Inviewofthisstatusquo,effortsshouldbemadetoimprovethepropertyrightstransactionmarketandcapitalmarket,cultivateanddevelopintermediaryagencies,andensurethesmoothprogressofbusinessmergers.

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