A merger (or “merger of equals”) occurs when two companies of similar size or otherwise beneficial to each other, collectively agree to join into a single entity. An entirely new business entity is formed from the two original entities, generally for the mutual benefit of each company. Mergers can be friendly or hostile and can occur through various methods such as hostile take overs or through friendly bids. Merger’s can be highly complex and require strict adherence to corporate governance laws such as state statues, articles of the company, controlling agreements and in some cases federal and state securities laws.
An acquisition, on the other hand, refers to one company taking over clear ownership of another and the original company is either extinguished or exist with less assets and sometimes less liability.
There are two main types of agreements in which most mergers or acquisitions use to effectuate the transaction, they are Asset Purchase Agreements or Stock Purchase Agreements.