Mergers And Acquisitions
1. Mergers Of Businesses
In business-friendly Hong Kong company directors often find themselves needing advice on the sale, purchase, and mergers of businesses. There are a number of ways in which such transactions may be carried out and the directors have to decide, for example, whether to buy and sell the shares in the company itself or alternatively the underlying assets.
2. Questionnaires For Purchase Agreement
Frequently such transactions begin by the purchaser submitting a questionnaire to the Vendor setting out the terms of the proposed deal and requesting particulars of the business being acquired. Thereafter the parties will enter into a sale and purchase agreement.
Both parties to the transaction will require certainty as to the fixed and current assets being transferred and the exact nature and extent of current liabilities including any charges or mortgages.
Consideration will also be given to matters such as tenancy agreements, employment contracts and all future liabilities arising therefrom. Trade contracts and agreements will also be disclosed.
Some businesses require regulatory approval (for example in the case of telecom companies licenses from OFTA) and there may be intellectual property that has been or ought to have been registered.
Actual or pending litigation is not something to be overlooked. The purchaser will also need to ensure that all tax returns and declarations have been properly made and liabilities paid.
3. Joint Ventures
Sometimes it is decided to conduct the business by way of joint venture. This may be done for a number of reasons, for example to share the risk, obtain economies of scale or when parties wish to combine complementary strengths.
4. Companies Or Partnerships
Joint ventures may be conducted through a corporate structure or a partnership. Amongst the advantages of conducting the venture through a private limited company are that liability is limited and further capital may be obtained by way of floating charge. Subsidiary companies may also be easily established.
5. Disputes To Be Resolved By Mediation
Parties to a joint venture agreement will wish to agree the applicable law and how the venture may be terminated, whether upon the natural expiry of the venture or in the event of difficulties or disagreements. The parties may wish to specify that in the event of there being disputes attempts should initially be made to resolve them by mediation.
Since the parties lose a degree of independence by entering into a joint venture they will often seek to agree a clear set of aims and objectives and a decision making process. It goes without saying that all revenue issues will have to be carefully agreed upon.
Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.