What Is a Business Combination?

A business combination is also called a "company merger." By entering into a merger agreement, two or more enterprises will combine their assets into one in accordance with the relevant laws and regulations to form a new enterprise. As a result of a business combination, the assets of the new enterprise are equal to the sum of the assets of each merged enterprise. Business combinations can be divided into two types: merger by absorption and merger by new establishment. Merger by absorption refers to a merger in which two or more enterprises have entered into a merger agreement and merged in accordance with the relevant laws and regulations, and one of the enterprises continues to exist after receiving the assets (including debts) of other enterprises and the other enterprises are dissolved the way. In this way, the dissolved company is called the merged company, and the company that continues to exist is called the surviving company. New establishment merger refers to the merger of two or more enterprises by entering into a merger agreement and merging in accordance with relevant laws and regulations, and setting up a new enterprise on the basis that all enterprises are dissolved. The effects of business mergers are mainly the optimization of resource allocation, the formation of economies of scale, the enhancement of market competitiveness of enterprises, and the improvement of economic benefits. ^[1]

Business combination

A business combination is also called a "company merger." By entering into a merger agreement, two or more enterprises will combine their assets into one in accordance with the relevant laws and regulations to form a new enterprise. As a result of a business combination, the assets of the new enterprise are equal to the sum of the assets of each merged enterprise. Business combinations can be divided into two types: merger by absorption and merger by new establishment. Merger by absorption refers to a merger in which two or more enterprises have entered into a merger agreement and merged in accordance with the relevant laws and regulations, and one of the enterprises continues to exist after receiving the assets (including debts) of other enterprises and the other enterprises are dissolved the way. In this way, the dissolved company is called the merged company, and the company that continues to exist is called the surviving company. New establishment merger refers to the merger of two or more enterprises by entering into a merger agreement and merging in accordance with relevant laws and regulations, and setting up a new enterprise on the basis that all enterprises are dissolved. The effects of business mergers are mainly the optimization of resource allocation, the formation of economies of scale, the enhancement of market competitiveness of enterprises, and the improvement of economic benefits. ^[1]

Through the merger, the property of multiple enterprises before the merger became the property of one enterprise, and multiple legal persons became one legal person. Business combination is

1. The parties to a business combination are the company itself, not the company

The main motivations for mergers among enterprises are:

1. Accelerate the development of enterprises, such as in order to expand market share as soon as possible;

Conclusion of merger agreement

The merger agreement is the basis of the company's merger. It is the written agreement reached by all parties participating in the merger on matters related to the merger, such as: the way of merger, the organization of the existence or establishment of the company, the arrangement of the claims and debts of the parties protocol. After the merger agreement is concluded, it does not take effect immediately. It must be approved by the shareholders' meeting. A joint stock limited company must also be approved by the relevant authorities before it becomes effective. Therefore, the merger agreement is a civil legal act with conditions for publication. The approval of the merger agreement is related to shareholders' rights and must be approved by the shareholders meeting. According to China,

(I) There are loopholes in legislation

Regulation and orderly business mergers need to be accompanied by sound laws and regulations. Although corporate mergers have a long history in China, they have become an important measure for the reform of state-owned enterprises at this stage. However, the laws and regulations on business mergers are still incomplete. The current legislation on mergers does not provide for many systems of mergers, and many of the rules regarding mergers are scattered in laws and regulations such as the Company Law and the Bankruptcy Law. For example, the Industrial Enterprises Law of the Whole People, the Regulations on Collective Enterprises and other important systems such as the form of merger, the effectiveness of the merger, the specific procedures of the merger, and the protection of creditors of the merger have not made provisions. Even the company law, which has more provisions on mergers, also lacks provisions on some major issues, such as merger contracts, protection of dissident shareholders during mergers, merger considerations and merger payments, and simple mergers. In addition, China has no anti-monopoly legislation so far, and it is difficult to prevent monopoly problems in mergers.

(2) Inconsistent or even contradictory legislation

In China, enterprises use different enterprise legislations according to different types. And the legislation of business merger is included in the corresponding business legislation, which has resulted in separate legislation of business merger. This lack of coordination between separate legislations creates inconsistencies and even conflicts. This confusion is mainly manifested in the following aspects: (1) Differences in the concept and form of business mergers. According to company regulations, the form of merger of a company is an absorption merger and a newly established merger. In the absorption merger, one company is dissolved and the other company exists; in the newly established merger, the parties to the merger are dissolved. The departmental document "Interim Measures on Mergers and Acquisitions" applicable to non-corporate state-owned enterprises stipulates that mergers and acquisitions "refer to the act of an enterprise purchasing the property rights of another enterprise, depriving other enterprises of legal personality or changing the legal entity. "Obviously, the" merger "here includes, in addition to the two types of mergers stipulated in the Company Law, the content of absorption mergers. In addition, the "Interim Measures" also stipulates that the merger of enterprises includes five forms: debt-bearing, purchasing, stock-absorbing, and holding. The different provisions of the legislation on the nature and form of mergers have led to ambiguity in people's understanding of mergers, which has resulted in the ambiguity of the concept of contract terms in mergers. (2) Decisions on mergers, differences in approval regulations, etc. Some regulations lack rationality. Considering the principle of balancing the interests of relevant stakeholders and considering both fairness and efficiency, there are still unreasonable factors in some provisions of the company law, the main law concerning mergers. For example, regarding balancing the interests of shareholders, the first is that there is no simple merger rule, which is not conducive to the protection of the majority shareholder and the improvement of the efficiency of the merger; the second is that it does not protect dissident shareholders (that is, dissent shareholders' share repurchase request rights). It stipulates that this is not conducive to the protection of minority shareholders and the principle of fairness in mergers. As another example, regarding the protection procedures of creditor's rights, the provision of overly cumbersome procedures for the announcement of a merging company and overly restrictive creditor objection effects are not conducive to a reasonable balance of the interests of creditors and shareholders, as well as the boundaries and efficiency of mergers.

(3) Imperfect markets, underdeveloped intermediary agencies, excessive government intervention, and the difficulty of the corporate merger mechanism to truly function

In business mergers, some government actions are necessary. Because under the current system, many actions are performed entirely by enterprises and there is no corresponding mechanism, the government can promote corporate mergers to a certain extent. However, at present, the government has blindly intervened too much in business mergers, and some corporate authorities have forced corporate mergers to lalang match, which seriously violates the basic economic laws of business mergers. One reason for this situation is the imperfect market for corporate property rights transactions. When a business merges, it relies on the market and is itself a capital movement. Without a developed and open property rights trading market and capital market, business mergers are bound to be very difficult. At the same time, intermediary agencies also play a very important role in business mergers. Mergers usually require the involvement of high-level intermediary agencies to provide information and consulting, matchmaking, and provide financial support for the merger parties. At present, the participation of intermediary agencies in business mergers in China is very limited, mainly as follows: the amount of information is small, the consulting service function is not strong; the professional quality of personnel is low; the main business of intermediary agencies is limited to financial auditing, asset evaluation and legal consulting. In view of this situation, efforts should be made to improve the property right trading market and capital market, cultivate and develop intermediary institutions, and ensure the smooth progress of corporate mergers.