Businesswoman sitting at office desk signing a contract with shallow focus on signature
Growing your business through a merger and acquisition (M&A) can be a very exciting opportunity. A successful M&A can give your company access to new talent, new technologies, and higher revenue, plus diversify the products and services you can offer. For California businesses, however, M&A transactions have several additional regulatory hurdles to navigate and are subject to specific legal requirements. This article will explore the legal considerations of M&A transactions in California.
Legislative Obstacles
Unfortunately, an M&A in California can be a challenging and expensive process for many businesses. The type of businesses involved and the time period in which they were established can have a huge impact on this process. For example, some operating agreements were grandfathered in from the Beverly-Killea Limited Liability Company Act, which was replaced in 2014. These grandfathered companies may be subject to different default provisions, depending on how their operating agreements were drafted, and any outdated policies can cause added complications as well.
Here are some additional examples of legislation that can impede the M&A:
California Corporations Code: This policy outlines consent requirements for M&As, consolidations, or the sale of all of a corporation’s assets. Both corporations and limited liability companies (LLCs) are required to obtain certain consents in connection with the M&A transaction, which can be quite extensive. Additionally, if the transaction will result in a change in the corporation’s articles of incorporation, the shareholders’ approval is required.
California Revised Uniform Limited Liability Company Act (RULLCA): This replaced the Beverly-Killea Limited Liability Company Act to provide a comprehensive set of rules and regulations for LLCs, which consequently impact the structure of an M&A transaction. Some components of RULLCA to navigate include:
- Existing Operating Agreements
- Dissolution and Winding Up
- Default Rules
- Management Structures
These components contain provisions related to the transfer of ownership interests, voting rights, and the roles and responsibilities of owners and managers. The best option is to consult with legal counsel before undertaking any M&A transaction to ensure that all requirements are met. A single legal misstep can result in additional liabilities and jeopardize the transaction.
Multi-State Considerations
An interesting caveat to M&A transactions involving California businesses is that the state welcomes new opportunities in, but it doesn’t easily let businesses out. A prime example involves California’s stringent labor laws and regulations. Companies in other states may not meet the requirements for certain wage and worker protection laws, making it difficult to move their operations without facing liabilities. If they keep operations in California, they may have to factor in an employment policy overhaul to stay in compliance.
Getting Help
These are just a few of the many legal challenges that businesses in California have to consider when working on an M&A transaction, but the right legal team can do wonders in terms of facilitating a smooth transition. If your business is ready for the challenges and opportunities that a California M&A can bring, contact our firm at (925) 399-1529 (1LAW) for a free consultation.
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