Companies’ mergers: Main points to consider

Companies’ mergers: Main points to consider

One of the most frequent corporate operations between companies is precisely the merger of companies.

In a context of an increasingly interconnected global economy, companies are looking for expansion strategies, but also for financial survival, in which this type of business operation is becoming increasingly relevant.

In fact, one of the most relevant points to take into account when setting up this type of operation is precisely whether the companies involved in this process have a registered office in the same country, or if, on the contrary, they are from different countries and we are dealing with a merger of companies of an international nature.

Below, we will indicate the main points to be taken into account in order to carry out a business operation of these characteristics, as well as the advantages and disadvantages that these operations may pose in practice.

Before continuing this analysis, we must ask ourselves about the main concept of this operation.

What is a companies’ merger and how does it work?

This commercial practice generally involves the merger of two companies which, until the time of the merger, operated as independent entities and which, for reasons of business expansion, decided to merge their corporate and financial structures.

In other words, the product of a company merger will be found precisely in the extinction of the corporate models of company A and company B, to give as a result a company C that will be different from the two previous ones, and that, as opposed to the cases of a business incorporation (in which company A would be extinguished, but company B would continue to expand), the companies involved in the process will modify their composition and structure to give rise to a new company.

Advantages of the merger of companies

The merger process between companies, despite its complexity, can produce very advantageous results, such as, for example, the optimization of certain production processes, as well as the expansion of the markets of both companies with respect to that of the other merged party, by taking advantage of synergies that, in short, can lead to business expansion in their areas of influence in the market.

Another advantageous aspect of a business merger process of these characteristics, especially when it comes to mergers at an international level, will be to take advantage of tax and fiscal benefits, and this bearing in mind that, on many occasions, the tax authorities of the countries grant tax benefits provided that the companies involved in the merger process meet certain requirements.

Potential problems or complications

In order to avoid possible inconveniences or complications in the process of a business merger we must be very attentive, prior to initiating this process, what the impact will be for both companies involved in the process, and develop a legal process with a sufficiently robust structure to be able to guarantee the success of the project.

To do this, one of the main aspects to take into account will be to have a financing plan that allows the whole process to be developed.

Recommendations to take into account

The main recommendation to carry out a successful merger of companies is to develop this business process hand in hand with a network of experts and professionals who, in a coordinated manner, manage to quickly complete the merger of with the least risk related to any tax and commercial contingencies.

Letslaw is a law firm specialized in commercial and tax law.