Do Two Companies Cease to Exist in a Merger?

When businesses merge, management has several options for structuring the new or surviving business. One business might absorb another, two brands might operate under a new corporation or both companies might shut down to create a new business. Understanding the different scenarios that result from mergers will help you decide if a merger is right for you.

Terminology

The terms “mergers” and “acquisitions” refer to the combination of existing businesses, which can occur under different scenarios. Under its most common definition, “merger” refers to two businesses combining on a more equal footing than when one company buys another. An acquisition occurs when one company purchases another, making it subordinate. During an acquisition, a company that owns several businesses might merge an acquisition into one of its existing businesses or allow it to operate independently.

One Company Ceases to Exist

With some mergers, one company no longer functions under its own name and management. The assets of the company are absorbed into the surviving company. For example, say Bob starts a corporation that runs his local Bob’s Burgers restaurants, operating two locations. He buys another local corporation that operates Hank’s Burgers, which has two locations. Bob closes the corporate offices of Hank’s and dissolves that corporation. He takes its assets, which include the two Hank’s locations, changes their names to Bob’s Burgers and operates his corporation with four locations. Bob would eliminate redundant corporate functions, since he won’t need two accountants, HR managers, marketing directors, office managers or IT directors.

Both Brands Survive

With some mergers, the corporations merge, but the locations and brands survive. For example, Bob’s Burgers might believe that Hank’s Burgers has such a loyal following that it wants to continue to operate the two Hank’s locations under that name. The companies would merge by combining corporate functions but continuing to operate four locations with two names. Bob would close Hank’s corporate offices and dissolve that corporation but continue to operate a company called Hank’s Burgers. When large companies merge and continue to operate separate brands, each one might have its own administrative office, handling its own marketing, HR, IT and accounting. In other instances, one office handles the corporate functions for both companies, keeping separate financial records for each.

Neither Company Survives

In some cases, the best scenario for a merger is to create a new company. This often occurs when two struggling companies believe that by combining their assets, they can succeed with a new name. This might be due to the fact that customers don’t have a good impression of the two companies that are merging, or that the two owners of a company can’t agree on which will survive. In this case, both corporations and their brands are dissolved, with the new corporation taking over the assets of the two businesses.