A company merger or in the case of corporations, a corporate merger, in China refers to the process of consolidating two or more companies into a single controlled entity through methods such as equity acquisition or asset exchange.
Company mergers in China are governed by a number of laws, primarily the Company Act of the People’s Republic of China, and all aspects of a merger, such as the execution of merger agreements and valuation of company assets, must be lawfully performed and filed with the appropriate market regulatory agency.
Overview of Internal and External Merger Procedures
Company mergers are classified as agreements between legal entities rather than administrative acts and are thus subject to specific procedures, both internally and externally.
Internal procedures encompass the process by which shareholder meetings pass resolutions on matters pertaining to the merger, while external procedures involve the process by which representatives from both merging companies enter into a merger agreement.
Upon completion of all internal and external procedures, companies formed as the result of a merger are required to complete registration and amendment filings with their local market regulatory agency, which is responsible for announcing the merger.
Company mergers can also be divided into horizontal, vertical, and mixed mergers, each with distinct objectives.
The aim of a horizontal merger is to expand a company’s market share within an industry, while vertical mergers are performed to integrate industrial resources and reduce overall costs. Mixed mergers, on the other hand, are carried out to diversify business risks.
Due Diligence for Company Mergers
Mergers require thorough financial, tax, legal, and human resources due diligence by all parties involved. A comprehensive assessment of the merged party’s assets, liabilities, and contracts should also be conducted to facilitate the development of a reasonable transaction plan.
Additionally, conducting antitrust and intellectual property due diligence is essential to avoid potential legal risks following the merger.
After a merger, the newly formed company should undergo restructuring through comprehensive due diligence and planning to properly complete the original companies’ business matters, with the employee structure and number of employees adjusted to support the future development of the new company.
Further Reading
See our comprehensive resources on China’s Foreign Investment Law. and an overview of FDI regulation in our Foreign Investment Law FAQ.
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