When two companies combine to form a single entity, it’s called a merger, but when one company purchases another, it’s known as an acquisition. As a small business owner, you might find yourself considering these options for many reasons.
Maybe you want to grow your customer base and expand your reach in the market. Or perhaps you’ve got your eye on some shiny new technology or intellectual property that could give your business a competitive edge. Mergers and acquisitions can also be a smart way to diversify what you’re offering and make your operations more efficient. And, if you’re looking to sell your business, these deals can help make that happen, too.
But in any of these cases, there are some key things you need to keep in mind to make sure everything goes smoothly.
One of the first things to consider when contemplating a merger or acquisition is the legal structure of the businesses involved. Are they sole proprietorships, partnerships, limited liability companies (LLCs), or corporations?
For example, if you’re acquiring an LLC, you’ll need to review the operating agreement to determine the rights and obligations of the members. You must examine the shareholder agreement and any stock transfer restrictions if the target company is a corporation.
An experienced NC business attorney can help you work through these complexities and ensure a smooth transaction.
No merger or acquisition should proceed without thorough due diligence.
This process involves a comprehensive review of the target company’s financial, legal, and operational health.
Some key areas to focus on during due diligence include:
Conducting due diligence is usually a complex and time-consuming task, but it’s essential for identifying potential risks and liabilities.
Uncovering significant issues during due diligence is important to avoid costly problems later.
Working with North Carolina business lawyers and financial professionals ensures nothing slips through the cracks.
Accurately assessing the target business is another critical task for a successful merger or acquisition.
There are several methods for valuing small businesses in North Carolina.
The appropriate method path will depend on factors such as the industry, the company’s financial health, and the purpose of the transaction.
Once you’ve determined the value of the business, you’ll need to secure financing for the deal. Options may include bank loans, seller financing, or private equity investment.
With the due diligence complete and financing secured, it’s time to negotiate the terms of the merger or acquisition.
Key elements of the agreement may include:
Effective negotiation requires balancing the interests of both buyers and sellers. Buyers want to minimize risk and maximize value, while sellers want to ensure they receive a fair price for their business.
Experienced legal counsel can help you tackle the negotiation process successfully and draft an agreement that protects your interests.
Mergers and acquisitions also have significant tax consequences for both buyers and sellers. An adequately structured deal minimizes tax liabilities and complies with federal and state tax law.
Business lawyers, CPAs, and financial planners understand the unique tax challenges of small business transactions in North Carolina.
In addition to planning, these professionals consider the long-term tax implications of the merger or acquisition and advise you accordingly.
North Carolina business law firms also help companies create business plans that answer the hard questions in a merger or acquisition:
Developing a comprehensive plan prepares you for challenges and sets your company up for success.
You must transfer and protect intellectual property (IP) rights during a small business merger and acquisition to preserve the value of the transaction.
This task may involve reviewing patents, trademarks, copyrights, and trade secrets and drafting appropriate assignment and licensing agreements.
Employee concerns and retention should also be a top priority during the transition. Communicating openly with employees about the merger or acquisition helps alleviate anxiety and uncertainty in the newly acquired workforce.
It’s also important to comply with North Carolina employment laws and regulations when merging or acquiring another company, such as the Fair Labor Standards Act and the North Carolina Wage and Hour Act.
As the closing date approaches, make sure all your documents are in order.
Once the deal is closed, the real work of integration begins. Developing a detailed plan for combining operations, cultures, and systems minimizes disruption and ensures a smooth transition.
Also, remember to monitor the progress of integration and make adjustments as needed.
Merging or acquiring a small business in North Carolina usually requires help from a team of experienced professionals.
From business attorneys, financial advisors, tax experts, and HR consultants, having the proper support makes all the difference.
At Johnson Legal, we understand the unique challenges that business owners face when buying or selling a company.
Our experienced business law firm provides personalized legal guidance and strategic counseling to help Wilmington business owners achieve their goals.
Whether you’re looking to expand your business through an acquisition or sell your company and move on to new ventures, we’re here to help. If you’re considering a small business merger or acquisition in North Carolina, contact us today and take the first step toward a successful transaction.
Shane T. Johnson is the CEO and Managing Partner of Johnson Legal, an estate planning and business law firm in Wilmington, NC. With years of experience in estate and business law, he has zealously represented clients in various legal matters, including small business formation and purchasing, estate planning, probate, domestic violence, and other legal cases.
Shane received his Juris Doctor from the University of Wyoming and is a member of the North Carolina Bar Association. He has received numerous accolades for her work, including being named among the Best Probate Lawyers in Wilmington by Expertise.com.
