Questions about mergers and acquisitions can be answered by some of the more popular Quiz for Law Students about Legal Risk. Here you will find a list of potential legal risks associated with a merger or acquisition. Some of these include: ownership restrictions, ownership structure, control, integration, limited partners, intellectual property, patents, revenue sharing, purchase price, seller financing, taxes, title, and war. If you were to read through all the questions here, you may get a few jolted responses. But consider some of these alternatives to what you might find on a standard quiz about legal risks:
My partner and I are negotiating a purchase and sale of our business. What are the risks involved in a transaction like this? What if we get into trouble during the negotiation? What if there is a question about ownership or control? How should I take my legal risk questions?
There are many reasons why a company would enter into a transaction and become involved in a merger or acquisition. Many of the reasons to enter into a transaction involves protecting cash flow, increasing market share, reducing costs and re-allocating resources to increase productivity. A company also enters into a merger or acquisition when it cannot continue its business as it did before the transaction. In fact, many mergers and acquisitions occur because a corporation is able to continue operations more cheaply than it could operate as a stand-alone company. The company realizes that if it were to continue to operate independently, it might fail and its stock would plunge.
Another reason why companies enter into transactions is to reduce their liability. A merger or acquisition creates issues of debt and equity. In addition, a company can lose its reputation, have its assets and operations subjected to lawsuits. That’s why a company needs to know about each of its risk factors.
The legal risks that could be created in mergers and acquisitions include breach of contract, fraud and securities fraud. Any one of these risk areas could lead a company into financial ruin and bankruptcy. One example of a breach of contract is a company that fails to deliver promised goods or service to a customer in a timely manner. This violates the contract that was entered into by the parties. Fraud is another risk associated with mergers and acquisitions, such as the possibility of the transfer of assets or liabilities and the issue of whether an investment will ultimately result in a loss for the acquiring party.
As mentioned earlier, one of the major concerns for investors is the risk of liability. In the past, courts have interpreted “liability” to mean damage or loss. However, recent cases have found that the definition of a liability has changed in the 21st century to mean any harm or loss, regardless of whether it resulted from negligence on the part of the insured. Courts also look at whether or not an investment poses an unreasonable risk to a company’s creditors or shareholders. If the answer is yes, then the venture is found to be risky and therefore should be sold.
Merger and acquisition activity involves a lot of risk for investors. When evaluating investment issues related to mergers and acquisitions, you must carefully consider the risks that can occur from the transaction itself as well as the potential issues that may arise after the transaction closes. Remember, a successful transaction requires careful consideration of all of the risks that are inherent in the venture. If you are thinking about entering into a business relationship with another firm, you should think long and hard about the legal risks that could be involved before you enter into the agreement.