The document discusses different methods of corporate reorganization including mergers, consolidations, and asset sales. It explains that mergers involve transferring all assets and liabilities from the absorbed corporation to the surviving corporation, followed by dissolving the absorbed entity. Consolidations similarly combine two entities but dissolve both and form an entirely new corporation. Asset sales transfer ownership of assets through legal instruments but do not dissolve the selling corporation. The document analyzes key similarities and differences between these methods in areas like shareholder approval requirements, asset transfers, treatment of previous corporations, and foreign corporation rules. It ultimately argues that asset sales may be preferable to mergers or consolidations for business reasons.
The document discusses different methods of corporate reorganization including mergers, consolidations, and asset sales. It explains that mergers involve transferring all assets and liabilities from the absorbed corporation to the surviving corporation, followed by dissolving the absorbed entity. Consolidations similarly combine two entities but dissolve both and form an entirely new corporation. Asset sales transfer ownership of assets through legal instruments but do not dissolve the selling corporation. The document analyzes key similarities and differences between these methods in areas like shareholder approval requirements, asset transfers, treatment of previous corporations, and foreign corporation rules. It ultimately argues that asset sales may be preferable to mergers or consolidations for business reasons.
The document discusses different methods of corporate reorganization including mergers, consolidations, and asset sales. It explains that mergers involve transferring all assets and liabilities from the absorbed corporation to the surviving corporation, followed by dissolving the absorbed entity. Consolidations similarly combine two entities but dissolve both and form an entirely new corporation. Asset sales transfer ownership of assets through legal instruments but do not dissolve the selling corporation. The document analyzes key similarities and differences between these methods in areas like shareholder approval requirements, asset transfers, treatment of previous corporations, and foreign corporation rules. It ultimately argues that asset sales may be preferable to mergers or consolidations for business reasons.
The document discusses different methods of corporate reorganization including mergers, consolidations, and asset sales. It explains that mergers involve transferring all assets and liabilities from the absorbed corporation to the surviving corporation, followed by dissolving the absorbed entity. Consolidations similarly combine two entities but dissolve both and form an entirely new corporation. Asset sales transfer ownership of assets through legal instruments but do not dissolve the selling corporation. The document analyzes key similarities and differences between these methods in areas like shareholder approval requirements, asset transfers, treatment of previous corporations, and foreign corporation rules. It ultimately argues that asset sales may be preferable to mergers or consolidations for business reasons.
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PEA, Clyde Ian Brett C.
BBL112-1T JANUARY 27, 2015
Ordinandum rei Corporatus
Through many years, corporate acquisitions, business reorganizations, and combinations and mergers have become more common across the business world. Corporate acquisitions can be made through a variety of methods and techniques. An acquisition may be achieved through a purchase of another corporations shares, assets or entire business (assets and liabilities). The Corporation Code of the Philippines governs the formation, organization and regulation of private companies, unless they are owned or controlled by the government or its agencies. The Corporation Code also governs mergers and other business combinations.
Mergers require a transfer of all the assets and liabilities of the absorbed corporation to the surviving corporation. This is followed by the dissolution of the absorbed corporation. In return for the transfer of all the assets and liabilities of the absorbed corporation, the surviving entity issues a block of shares equal to the net asset value transferred. These shares are in turn distributed to the stockholders of the absorbed corporation. A legitimate business purpose for the merger is essential. (KPMG, 2014)
A de facto merger is the acquisition by one corporation of all or substantially all
of the properties of another corporation solely for stock, usually undertaken for a bona fide business purpose and not solely to escape taxation. For the acquisition to be considered substantial, at least 80 percent of the assets acquired must have an element of permanence; that is, not acquired for immediate disposal. Unlike a statutory merger, where the absorbed corporation is automatically dissolved as a consequence of the merger, in a de facto merger, the corporation the assets of which were acquired survives after the transfer until it is later dissolved by another act. However, in a de facto merger, the acquisition of assets does not automatically result in the dissolution of the corporation the assets of which are acquired. (ibid.)
Unlike a merger, a consolidation of nonprofit entities involves the dissolution of
each of the corporations involved, and the creation of an entirely new corporation that takes on the programs, resources, and activities of the former entities. Although the net effect of a merger and consolidation are the same one surviving entity with all the assets and liabilities of the two previous groups many associations prefer consolidation over merger because it tends to lend the perception that no organization has an advantage over the other. There is a new corporation which houses the activities of the two and each is dissolved pursuant to the consolidation. (Venable LLP, 2010)
The objections to a merger or consolidation may arise from the desire to avoid some of the requirements of the law. The main objection to a sale of assets arises in connection with distributing the consideration received among the shareholders of the selling corporation. Consolidations and mergers, being fundamentally alike, may, for purposes of comparison, be considered together as one method of voluntary reorganization, and a sale of assets may be considered separately as the other. In either case there is a transfer of assets to another corporation and usually an assumption of liabilities. In either case there may be an exchange of shares and dissolution of the transferring corporations.
Their similarities and differences may be summarized as follows (Hills, 1931)
Merger Consolidation Sale of Assets
Requirements as The shareholders of The shareholders The purchasing to vote or consent the surviving of all the corporation acts of shareholders corporation & the constituent only through its merged corporations corporations must board of directors; are entitled to vote authorize the necessity for and to exercise the agreement of shareholders' rights of dissenting consolidation authorization is on shareholders the selling corporation Transfer of Assets Assets of dissolved corporation are Assets of the (The result is the transferred to the new corporation by selling corporation same regarding the operation of law are transferred by final position of the instruments of assets) conveyance Life of previous A new corporation is A new corporation A corporation is not corporation created and one of is created and the dissolved, but it is the constituents loses constituent customary to its corporate corporations lose liquidate its affairs existence their corporate and cause its existence dissolution. Unless dissolved the corporation is a hollow shell or an inactive holding corporation Dealings with State statutes permitting corporations to A corporation may Foreign consolidate do not as a rule permit the sell its assets to Corporations consolidation of a domestic corporation with any other a foreign corporation corporation, domestic or foreign. Shares of Stock Require an exchange of the shares of all Does not disturb the corporations involved. the shares of the purchasing corporation or require an exchange or substitution of certificates
Based from the above mentioned details, the method of consolidation or merger is inconvenient or undesirable for business reasons, and that a sale of assets is usually preferable to any other procedure in spite of its difficulties. Accordingly it seems desirable that adequate legal provisions should be made whereby a sale of assets may have all of the benefits of a consolidation if the shareholders wish so. This cannot be done without solving the problem of distribution.
REFERENCES:
KPMG. Taxation of Cross-Border Mergers and Acquisitions. 2014.
