Definition
A statutory merger is a legal procedure in which two or more corporations combine into a single entity, and only one corporation survives as a legal entity. The surviving corporation assumes all the assets, liabilities, and operations of the other merging corporations, which cease their separate existence. This is distinct from a statutory consolidation, wherein all involved corporations cease to exist, and a new corporation is formed to assume all the assets and liabilities.
Examples
- Company A and Company B Merger: Company A acquires Company B, and Company B ceases to exist. Company A continues to operate, now including Company B’s business assets and customer base.
- Bank Mergers: A large bank (Bank X) merges with a smaller bank (Bank Y). Bank Y’s operations are entirely integrated into Bank X, and Bank Y no longer exists as a separate entity.
Frequently Asked Questions (FAQs)
Q1: What happens to the shareholders of the non-surviving corporation?
A1: Shareholders of the non-surviving corporation typically receive shares in the surviving corporation in exchange for their original shares, based on a predetermined exchange ratio.
Q2: How are the liabilities handled in a statutory merger?
A2: The surviving corporation assumes all liabilities and obligations of the non-surviving corporations.
Q3: What regulatory approvals are required for a statutory merger?
A3: Statutory mergers typically require approval from shareholders of the involved corporations and regulatory bodies, such as the Federal Trade Commission (FTC) or Securities and Exchange Commission (SEC), depending on the jurisdictions and industries involved.
Q4: Can statutory mergers be challenged by stakeholders?
A4: Yes, stakeholders such as shareholders or creditors may challenge a statutory merger, typically through legal channels, if they believe the merger is unfair or not in their best interests.
Q5: How does a statutory merger affect employees?
A5: Employees of the non-surviving entity often become employees of the surviving corporation, though there may be redundancies and changes in roles or structures.
Merger:
A broader term that includes various methods of combining two or more companies. This can be through statutory mergers, consolidations, or acquisitions.
Statutory Consolidation:
A legal combination of two or more corporations wherein all involved corporations cease to exist and a new corporate entity is created to assume their liabilities and assets.
Acquisition:
A transaction where one company purchases another. Unlike a merger, the acquired company may continue to operate as a separate legal entity.
Absorption:
Similar to a merger, where one company absorbs another, taking over its assets, liabilities, and operations.
Online References
Suggested Books for Further Studies
- “Mergers, Acquisitions and Other Restructuring Activities” by Donald DePamphilis
- “Mergers and Acquisitions Basics: The Key Steps of Acquisitions, Divestitures, and Investments” by Michael E. S. Frankel
- “The Art of M&A: A Merger Acquisition Buyout Guide” by Stanley Foster Reed and Alexandra Reed Lajoux
Fundamentals of Statutory Mergers: Corporate Law Basics Quiz
### In a statutory merger, what happens to the non-surviving corporation?
- [x] It ceases to exist.
- [ ] It continues to operate under a new name.
- [ ] It becomes a subsidiary of the new corporation.
- [ ] It retains its legal entity status but becomes a shell.
> **Explanation:** In a statutory merger, the non-surviving corporation ceases to exist as a separate legal entity. Its assets, liabilities, and operations are absorbed by the surviving corporation.
### Who typically needs to approve a statutory merger?
- [ ] Only the board of directors of each corporation.
- [x] Shareholders and regulatory bodies.
- [ ] Only the CEO of each corporation.
- [ ] Only the legal departments of each corporation.
> **Explanation:** A statutory merger usually requires approval from shareholders of the involved corporations and regulatory bodies like the FTC or SEC.
### How are shares generally allocated to shareholders of the non-surviving corporation?
- [ ] They retain their original shares.
- [ ] They receive cash payouts.
- [x] They receive shares in the surviving corporation.
- [ ] They are given future shares options only.
> **Explanation:** Shareholders of the non-surviving corporation generally receive shares in the surviving corporation based on a predetermined exchange ratio.
### What is a distinguishing feature of a statutory merger?
- [ ] Continuation of all combining entities.
- [x] Only one entity survives.
- [ ] Creation of a new legal entity.
- [ ] No change in corporate structure.
> **Explanation:** The unique feature of a statutory merger is that only one corporation survives, while others cease to exist.
### What type of assets are transferred in a statutory merger?
- [x] All assets of the non-surviving corporation.
- [ ] Only cash assets.
- [ ] Only physical assets.
- [ ] Only intangible assets.
> **Explanation:** In a statutory merger, all assets of the non-surviving corporation are transferred to the surviving corporation.
### In what legal document is the exchange ratio of shares typically specified?
- [ ] Board Meeting Minutes
- [x] Merger Agreement
- [ ] Company's Annual Report
- [ ] Internal Memorandum
> **Explanation:** The exchange ratio of shares is typically specified in the Merger Agreement, which outlines the terms and conditions of the merger.
### How does a statutory merger differ from a statutory consolidation?
- [ ] There is no formation of a new entity in either case.
- [x] In a merger, one company survives, whereas in a consolidation, a new entity is formed.
- [ ] Both surviving companies cease to exist in the merger.
- [ ] Consolidation covers more than two companies at a time.
> **Explanation:** In a statutory merger, the non-surviving entities cease to exist, while a surviving entity continues. In a statutory consolidation, all entities cease to exist and a new entity is formed.
### Are liabilities of the non-surviving corporation transferred during the statutory merger?
- [ ] No, they remain with the non-surviving entity.
- [ ] They are divided among the surviving corporation’s shareholders.
- [x] Yes, they are transferred to the surviving corporation.
- [ ] They are nullified.
> **Explanation:** The surviving corporation assumes all liabilities and obligations of the non-surviving corporations in a statutory merger.
### What might happen to employees of the non-surviving entity in a statutory merger?
- [ ] They always lose their jobs.
- [x] They typically become employees of the surviving corporation, although roles may change.
- [ ] They receive a severance package.
- [ ] They automatically retire.
> **Explanation:** Employees of the non-surviving entity generally become employees of the surviving entity, though there may be role changes or redundancies.
### What is crucial for a successful statutory merger?
- [ ] Making sure the merger remains an internal company secret.
- [ ] Ensuring minimal to non-disclosure to regulatory authorities.
- [x] Obtaining necessary shareholder and regulatory approvals.
- [ ] Avoiding any meetings with the employees pre-merger.
> **Explanation:** Successfully completing a statutory merger involves obtaining necessary shareholder and regulatory approvals.
Thank you for exploring the fundamentals of statutory mergers and polishing your knowledge through our quiz. Continue expanding your expertise in business law!
