Given the various ways two different businesses can combine, you should know whether or not a transaction will be beneficial to your company. Many businesses come together through a merger or an acquisition.
The difference between these two concepts is important since choosing the wrong kind of business combination could cost you control over your company.
Characteristics of a merger
In a merger, both businesses are similar in size, so each company is likely to be an equal of the other. The leaderships of both companies usually want the merger to take place and will work out a transaction to the mutual agreement of all involved.
Generally, the goal of a merger is for two smaller businesses to become one larger company. Though mergers may vary, the hypothetical outcome is for the shareholders of each company to exercise equal control over the new business.
Mergers compared to acquisitions
In contrast to a merger, an acquisition involves a larger company buying or taking control of a smaller one. Also, acquisitions do not always require the consent of the target company leadership. A larger business may initiate a hostile takeover by dealing directly with the target business shareholders.
Sometimes a business buys out the assets of another company. Typically, this happens when a company goes bankrupt, though it may still require the shareholders to approve the sale.
Given that business combinations take different forms, you should know early on if you wish to keep control over your enterprise. Even an agreement that lets two companies share power over a new business should clearly spell out the rights of all involved.