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How a statutory merger works

Business owners in Texas may be interested to learn about statutory mergers and how they work. A statutory merger is a company merger governed by certain state statutes. Although many of the laws concerning statutory mergers are similar from state to state, key differences will need to be taken into account such as the rights of company shareholders.

A statutory merger takes place when one company completely absorbs another company, and the absorbed company is no longer a legal entity. The company that remains will then take control of all of the absorbed company's assets and liabilities. If there is any pending or future litigation concerning the actions of the company that was absorbed, the acquiring company will stand in its place.

Another type of statutory merger, called a "combination," takes place when two or more companies merge to create a brand new entity. These kinds of mergers will result in the complete disappearance of all of the business entities that went into the merger. Before any kind of statutory merger is completed, the corporations involved will be required to produce a document called a "plan of merger" that the board of directors will vote on.

Because a statutory merger combines the assets of multiple companies, a business transaction like this could potentially be very beneficial for the entities involved. To ensure that everything goes smoothly, many business owners choose to enlist the help of an attorney while completing complex business transactions like drafting a plan of merger. An attorney may also be able to conduct an investigation into a business' liabilities to ensure that there are no outstanding liabilities that could result in major losses for the surviving company in the future.

Source: Findlaw, "Texas Business Law: Mergers and Acquisitions", October 13, 2014