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  • Daniel Rodriguez

What is the difference between business mergers and acquisitions?

Whether you’re trying to start a business in California or keep one alive, both tasks are difficult for entrepreneurs. Keeping a business alive may be even more difficult, sometimes requiring the infusion of new capital into the company. Mergers and acquisitions are a prime way to keep struggling businesses alive.

Explaining the difference between mergers and acquisition

Knowing the difference between mergers and acquisition is essential when you’re trying to keep a business afloat. Merger agreements involve the owners of two or more companies who agree to combine their resources to expand their reach and reduce the cost of operations. Companies that agree to merge are generally equal in size and earnings. After a merger, the original companies cease to exist, and a new company is born.

Acquisitions are technically purchases as a profitable company decides to buy most or all of a company’s shares. When the acquiring party purchases the entire company, the latter becomes part of the acquiring firm. Consolidations occur when companies combine talents and resources, increase profitability and transform competing companies into one, creating a cooperative enterprise.

Each option has specific advantages for your situation. Weigh each carefully before proceeding with one.

Changing your business structure

Whether you decide to merge your company or allow a larger, more profitable one to acquire it, you will face many different business law implications resulting from the transaction. Your tax structure will most likely change whenever a merger or acquisition occurs. Pay attention to your new business tax status and ensure that you comply with all regulations.

Choosing whether to have another company acquire your business or merge with a similarly-minded company is a matter of choice. Assess your options carefully to determine which option is best for your operations, tax status and your future.

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