Sale, Acquisition and Merger
By Mike Vaughn
The sale of a marine business may take several forms. The most simple is the direct sale of all assets.
What are all assets?
Obviously it is everything that the business owns. This will include all “hard” assets such as ships and support equipment, fuel and consumables on board or in inventory, spare parts, repair equipment, offices and all office equipment.
It will also include such intangible things as:
- Business in progress
- Customer List
- Advertising in place
- Telephone numbers, fax numbers, e-mail address and Internet Sites
There is another side to the sale. The buyer may also take all of the liabilities. A liability is any thing that the company is obligated to pay, return, refund or do.
Typically, liabilities include:
- Promissory Notes and guarantees
- Wages due and owing
- Back wages
- Union contributions
- Repair bills or other payment for services received
- All other financial obligations of the company
How we deal with the asset and liability problems in a sale is determined by a variety of factors including the nature of the business and how it is organized.
Businesses are organized in a few basic ways:
- Sole proprietorship – One person owns and operates the entire business in his or her name.
- Partnership -- Two or more persons operate and own the entire business under a joint or partnership name.
- Corporation – The company is owned by one or more people whose ownership is represented by shares of stock in the corporation. The corporation may be public or private.
- Private Corporation – This is typically a corporation with fewer than 30 stockholders (the number is regulated by law).
- Public Corporation – This type of corporation is entitled to sell stock to any number of shareholders.
The danger of a sole proprietorship and partnership is that the liability of the company becomes intermingled with the liability of the owner or partners.
A very simple example is one in which the company is being sold while the sole proprietor owner or one of the partners is involved in a divorce. His liability in the divorce may involve his assets in the sole proprietorship or partnership. When and where the liability may end is usually only resolved by lawyers and judges.
A corporation is a legal person in the view of the law. It transacts business by way of a Board of Directors, elected by the shareholders and corporate officers selected by the Board of Directors.
The corporation may conduct business as if it is a “real person”. Consequently, liability of the individual shareholders applies only to the shares of stock that they own. Personal liability for the officers for non-corporate acts will not be imputed to the corporation.
When the corporation is being sold, only the shares of stock will change hands. The officers and board of directors and all outward appearance of the company may not change at all. This provides for a very seamless transition for the new owners to take over a going company without disturbing long term relationships with customers and suppliers.
The purchase of a sole proprietorship or partnership involves replacing the original owner with a new owner so that there is a very obvious change in operations.
Sale Acquisition & Merger
The terms “Sale” “Acquisition” and “Merger” have very distinct meanings.
The sale of course means a sale of the company for money or something of value. Acquisition is the buying of a company for money or something of value.
Merger is different. A merger is a joining of two or more companies to form a new entity. This new entity may be essentially the same as one or the other of the previous companies. Or it may a entirely new operation.
Many times the term “merger” is misused to mean the buying of one corporation by another. This is routinely done by purchasing the stock of one corporation by the other and taking over assets and operations and blending them into the larger corporation. A true merger is a partnership of corporations. The two companies agree upon a value of the stock for each company and then at the time of merger the new entity will issue new stock in proportion to the value of the old corporate stock.
A brief example would be Corporation A with stock worth $50.00 per share merging with Corporation B with stock worth $200.00 per share with the total number of shares of stock equal.
The new corporation would issue stock at $100.00 per share. Shareholders of Corporation A would receive 1 share of stock for each 4 shares received by the share holders of Corporation B.
The end result is that the shareholders are in the same relative position price wise as before the merger. The benefit would be that now they would anticipate a substantial overall improvement in the operation of the entire business, so that all shareholders would benefit.