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Chapter 16. Additional Legal Aspects > Legal Rules Governing Mergers and Acquis...

Legal Rules Governing Mergers and Acquisitions

Applicable Corporate Laws

Corporate law in the United States— There is no single corporate law in the United States, since every state has its own domestic corporation law. The most relevant corporate law is in Delaware. For example, all mergers and acquisitions require the approval of the board of directors, but not of the general meeting, if less than 20% of the corporation's shares is offered as the consideration in the merger. This enables large companies to buy small companies without the need to go through the red tape of a shareholder approval process. Obviously, the shareholders of the target (the startup) are required to give their approval, according to both Delaware corporation law and, typically, the terms stipulated in the investment agreement.

The approval of the boards of directors of the companies has to include, among other things, a specification of the terms of the merger and a decision on which entity will survive the merger. If a shareholders' meeting is required, then it is the one which decides to approve the merger. Once the required approvals are obtained, a notice is filed by the surviving entity with the Delaware Secretary of State. After the notice, the merging company ceases to exist and its shareholders are allotted shares in the surviving entity. All of the companies' assets and liabilities become the property of the surviving entity.


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