How to Merge Two Corporations

By Nicole Manuel
Two businessmen shaking hands.
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Entering a merger is a big decision for many companies that can impact every level of the businesses involved. Mergers can benefit companies by streamlining costly processes while maximizing tax benefits and improving the range of products and services. The process of merging, however, is often lengthy, as it can require an update to legal, financial, management and marketing practices. The government requires corporations to follow strict procedures to protect competition and the identity of the new corporation.

Types of Mergers

Many types of mergers exist to accommodate corporations. Horizontal mergers halt competition between the two companies in the same industry, as in the case of two phone companies. Vertical mergers -- of a car manufacturer and an engine company, for example -- internalize the supply chain. Conglomerate mergers are between two companies that have complementary products or services, such as a soda company and water company. Companies can merge under the name of the purchasing company or have the subsidiary company maintain its name under the umbrella of products and services offered by the holding company.

Financial Procedures

One of the most important steps in merging two companies is the purchase of the merging company's stock and assets. According to "Reference for Business," stock from the subsidiary can be used as collateral for financing additional debt. Holding companies are protected from the creditors of their subsidiaries; however, if a holding company is considered a single legal structure with one legal name, financial statements must be consolidated and prepared for the entire entity. The holding company must have at least 80 percent of the subsidiary's voting stock to be taxed as a single entity.

Legal Process

According to "The Legal Dictionary," a common legal procedure for merging two companies is for both companies' board of directors to pass a resolution that includes the names of the involved corporations, the proposed name and any legal provisions necessary. To file a request for a merger or acquisition, companies can then obtain a certificate of merger for formal authorization from their local secretary of state website, according to "The Legal Dictionary." Federal antitrust laws are used to determine whether a merger will greatly reduce competition in an industry. If this is the case, the federal government can prevent a merger.

Integration and Identity

After the formal process of a merger comes the integration process, which involves they way employees and customers interpret the new entity. According to "Ivey Business Journal," roles within the companies will be reorganized and many may fear losing their jobs or being demoted, while others might zealously seek a higher position. To ease tensions, "Ivey Business Journal" recommends that management provide information on any changes that will occur, reveal the shared vision of the two companies and answer questions and concerns. The marketing team should address the confusion and concerns of customers by introducing the merged companies' identity and providing information about what is now offered by the new entity.

About the Author

Nicole Manuel is a finance and economics writer with a degree in economics and more than six years of professional writing experience. She is also a Certified Professional Coach (CPC) known as The Personal Eco-nomist, who specializes in helping people live healthy, abundant lives on a budget.