Future? It may sound a little intimidating to think about it, but at the same time it is inevitable and we mustn’t feel discouraged of what it brings us by any means.
As to the future of advocacy, many predict the rising of Human Rights and European Law as the leading fields of interest. I shall agree with them to a certain extent, but my belief is in regard to the field of Mergers and Acquisitions. Did you know that the first ones occurred in the late 1890’s in the production of energy and railroad networks? I must admit, it is quite impressive how early this started.
First and foremost, I want to explain what Mergers and Acquisitions (M&A) are so that you, the readers, can get accustomed with the terms and have a better overall understanding of what this field brings to the table. M&A are financial transactions with the aim of unifying two legal entities into one.
Moreover, this unification can consolidate the entity and make it less vulnerable to threats such as losing clients or economic crisis. It can furthermore change the ownership and the structure of the new business. The distinction between mergers and acquisitions is not difficult to comprehend, as they follow different purposes.
A merger arises when two legal entities associate with the purposes of sharing their ownership and creating a new entity. This leads to “shareholders” as the term best defining this type of transaction.
Acquisitions are rather different because the ownership is not shared equally. One of the entities is taken over with the aim of establishing one major shareholder who furthermore has decisional power.
Secondly, I want to share with you my unmitigated belief as to why this is the future of advocacy. In the context of globalization small companies have unfortunately started to collapse under the eyes of market leaders. Supporting evidence for this statement is to be found in the analysis Deloitte offers every year regarding the M&A market. The predictions are quite stable for the following year and show a rise. I have no doubt this ascension will occur at an alarming pace in the next decade.
On the other hand, I strongly advise everyone to see the positive side of M&A as they can bring together smaller entities into a strong and successful one. A consolidated entity can attract new investors, new clients and new opportunities that might not be possible unless this type of transaction happens. But at the same time new legal issues can appear and they should be foreseen and solved by both the entity and the legal advisor.
Now, let’s proceed to how is this related to the law field. In order to finalize such a complex transaction, one must consult law and regulations in order to avoid legal problems. The first legal aspect which must be established is the new structure of the entity.
For example, if one entity purchases stocks with the aim of acquiring a small part of the ownership, we refer to an “asset purchase” approach. If an entity wishes to purchase a majority of stock and become a major shareholder, the restructuring approach is referred to as “share purchase”. Regarding “mergers”, this approach consists of unifying two entities in order to become a bigger, consolidated and sustainable business. I strongly believe such a delimitation must be correctly made by lawyers as different laws and regulations apply.
Another legal aspect encountered within these transactions is money. Advocates must legally establish each entity’s capital stock. Also, attention should be paid regarding the non-distributable reserve or capital reserve which is secured and cannot be sold as a dividend to the new shareholder(s). If such a transaction is made (referring to the latter one), liabilities will arise on behalf of the selling entity.
If you wish to know more about how M&A are regulated and need legal counselling, we are delighted to offer you our support, our confidence and legal expertise throughout the entire process.
Here, at Ionescu & Associates, we believe that a client-lawyer relationship must be established on trust, commitment, reciprocity and communication on both sides!
Also, we fully understand every client’s needs and rapidly adapt in order to find the best legal solutions.
Savescu Kristin Elisabeta