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Mercantile law 443
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Advanced company law notes with case sumaries
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Fundamental transactions1 General introduction:
Dealing with chapter 5 of Companies Act
There are not many sections are expected to read the provisions of chapter 5.
Example:
You have extra funds and want to buy a company. You want to own the company usually
because it is a successful company with potential.
There is a company that you want to own ---> target company
2 Terminology:
Target: this is the company that you want to own.
How do you go about obtaining this company?
Make an offer
- What are you offering to buy if you make an offer to a company?
Hoping to buy the business of the company and the goodwill that goes with it.
Is there another way of achieving objective?
Buy the shares in the company
Thus two ways of obtaining a company:
1. Buy the business of the company:
Approach the company because in that transaction, the seller will be the company because
the company owns the assets of the business and the goodwill.
To do this you would start a new company in which you are the shareholder and that company
purchases the target company
2. Buy the shares in the company:
Buy the shares from the shareholders
The company is essentially not involved in this transaction and is not a party to the
transaction in the strict sense.
Buyer will go directly to shareholders
In the economic sense, the same result is achieved.
NB: the different routes may have distinct legal consequences.
In either of these scenarios, the position of the shareholders is of paramount importance.
Why?
Either way they will be affected but more than that the effect is potentially that economically
their interests will be terminated
E.g. either their shares are bought or bought the assets, the entire company or nothing
remains.
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