A merger is when two or more companies come jointly as one new company. It is a trendy way to develop the market position of a company and at the same time, to increase the level of profit through additional customer base and resources.
Merger mechanics: The merger mechanics are given below –
Payment method: Financing packages are extremely varied. Buyers may use common, preferred convertible securities cash, straight debt, warrant or some combination of these. Typical payment methods used in a modern business context include cash, checks, credit or debit cards, money orders, bank transfers, and online payment services such as PayPal.
- Cash: In cash for common exchange the selling company’s’ stockholders receive cash for their common stock.
- Common stock: In a common for common swap the selling company’s stockholders give up their stock in return for common in the buying company.
- Convertible securities: Convertible debentures and convertible preferred stock were used frequently to finance conglomerate acquisition because of their favorable effect on EPS.
Tax considerations: crucial considerations in a merger is its tax status. Mergers are classified either taxable or tax-free transactions for purpose of determining the immediate federal income tax liability of the seller and its stockholders. This means it’s significant to consider what sort of taxes you could be liable for before liquidating or moving assets held within a non-registered account. E.g., Corporate taxes are levied on the income of various entities, stemming from their business operations.