What does it mean when a corporation “merges” with another company?
Under Colorado law, a merger is generally treated like a sale of stock. In the merger the buyer, called an “acquirer,” assumes all of the corporation’s assets and liabilities by operation of law and without the need for any other agreement or transaction. Under Colorado law, mergers generally take one of the following forms, and the form chosen will always depend on the business, tax, and practical reasons for the merger:
- Forward Merger: The Seller merges into the Acquirer, with the Acquirer surviving the merger.
- Forward Triangular Merger: The Seller merges into a wholly-owned subsidiary of the Acquirer, with the subsidiary of the Acquirer surviving the merger.
- Reverse Triangular Merger: A subsidiary formed by the Acquirer for the sole purpose of effecting the merger merges into the Seller, with the Seller surviving as a wholly-owned subsidiary of the Acquirer.
Documentation And Filing Requirements
To make a merger effective under Colorado law, the acquirer must file a Statement of Merger with the Colorado Secretary of State. The statutes that govern the filing of the Statement of Merger set forth certain information that must be set forth in the Statement, and the statute restricts the other information that may be included in the Statement of Merger. Each of the entities that are parties to the merger must comply with the statutes organizing documents and agreements under which it was formed and operates. For example, if a party to the merger is a corporation the corporation’s board of directors will adopt a plan of merger that will be approved by the corporation’s stockholders. The approval and adoption of the plan of merger may be accomplished after notice to the directors and stockholders of the meetings and of the votes to be held, all as provided in the statutes and organizing documents and agreements that govern the operation of the corporation.
Dissenters’ Rights in Mergers
If a corporation’s stockholders vote against a plan of merger and comply with the procedures set forth in the Colorado law, they may receive either: (1) cash equal to the fair value of their shares immediately before the effective date of the merger; and (2) interest accruing from the effective date of the merger, all in lieu of the consideration set forth in the plan of merger. If the stockholder believes that the fair value of the shares determined by the corporation is too low, the stockholder may demand that the corporation pay the stockholder the amount that the stockholder estimates to be the fair value of the shares. The corporation must then either file a lawsuit to have a court determine the fair value of the shares or pay the amount demanded by the stockholder.
Legal Effects of Mergers
After a merger, all of the assets and liabilities of the merged corporations become vested in the surviving corporation by operation of law. This transfer of assets and liabilities is not an assignment, and therefore does not require the consent by third parties.
Short Form Parent-Subsidiary Mergers
If one corporation owns at least 90 percent of each class of the stock of another corporation, a simplified form of merger allows the owner, the parent, to merge with the corporation whose stock it owns, the subsidiary. No votes of the subsidiary’s stockholders is required. No action is required of the subsidiary’s board of directors. The parent simply mails a written summary of the plan of merger to all stockholders at least ten days before the effective date of the merger. If the parent is the surviving corporation and the plan of merger does not change the parent’s articles of incorporation, the parent’s stockholders will not change and their stockholdings will not change, and if the parent will not issue more than twenty percent of its outstanding shares in connection with the merger, no vote of the parent’s shareholders is required.
