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Purchasing Another Company
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Purchasing Another Company
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First, a few words to show where I'm coming from on this - in Canada, when one company buys another company, the purchasing company also "buys" the employees of the second company, along with their se
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Purchasing Another Company
posted at 8/11/2010 7:21 AM EDT
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Posts: 1771
First: 10/24/2002 Last: 9/14/2011 |
First, a few words to show where I'm coming from on this - in Canada, when one company buys another company, the purchasing company also "buys" the employees of the second company, along with their seniority, etc. This is enshrined in Canadian law and occurs automatically UNLESS something different is written and agreed-to in the purchase terms.
Is it the same way in the US? Or is something different required? Our company is purchasing three plants in the US, and I need to know the legal requirements around passing employees from the old company to the new one. Thanks. |
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Purchasing Another Company
posted at 8/11/2010 9:01 AM EDT
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Posts: 1103
First: 3/16/2007 Last: 8/19/2011 |
It all depends upon the purchase type. In fact, one can buy a company, purchase its assets, leave the liability behind (in most jurisdictions) and have no obligation to hire or retain any of the employees.
One can almost do what they want. I have purchased companies and fired everybody Purchased companies and fired most Purchased companies and hire all. Been purchased and had the above happen to me. All depends upon how the purchase agreement is written. Clear as mud huh. |
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Purchasing Another Company
posted at 8/11/2010 9:34 AM EDT
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Posts: 1771
First: 10/24/2002 Last: 9/14/2011 |
I guess one of the things I'm getting at is if we buy a company in the US and decide we're going to keep all the employees, do we have to formally hire and onboard them all? Or will they just automatically become our employees, as long as the purchase agreement doesn't say otherwise? |
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Purchasing Another Company
posted at 8/11/2010 9:54 AM EDT
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Posts: 562
First: 11/12/2009 Last: 9/14/2011 |
I think you'll need to contact an attorney on that one as well as a number of other attendant issues.
It may depend on how the acquisition is structured. If you are going to operate the US facilities as a wholly owned subsidiary, then you're probably looking at something as simple as a change of control. But if you're going to absorb these units into your overall corporate umbrella, there will probably be different considerations. You will also need some help, in all likelihood, with transitioning your benefits programs. It can be very tedious to terminate a 401K employee thrift savings program, for example. |
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Purchasing Another Company
posted at 8/11/2010 10:28 AM EDT
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Agree with Nork....the structure of the purchase will have many implications. And you should find a good attorney to help you navigate it.
One such implication is whether you inherit certain history (such as unemployment claims, workers compensation loss rates, etc). Also whether payroll taxes such as Social Security, Medicare, state unemployment and/or disability will start over for the new company or continue. This will make a difference to any employee who makes more than the earnings limit. On SS this matters because the employer MUST withhold and then the employee would get the extra back at tax refund time. Another implication is what happens to pension plans and 401k's. 401k plan terminations are NOT fun. You might have some controlled group issues also depending on the structure of the new company and the purchasing company. I wouldn't want to do this as a DIY with competent counsel. That said, we essentially took over a company and then a few months later spun the whole thing into a new company. At that time, I rehired all the employees under the new company. We did have to restart unemployment taxes and workers compensation rates, but the SS/Medicare did matter because we didn't have employees making enough. But there were NOT other benefits (401k, health etc) to deal with. I do recommend either way that you do a complete HR employee file audit because you might be taking on some I-9 and W-4/payroll liability if you do NOT rehire. |
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Purchasing Another Company
posted at 8/11/2010 3:10 PM EDT
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Posts: 1103
First: 3/16/2007 Last: 8/19/2011 |
The purchase agreement should spell that out. I have simply "brought them over" into the company data base as well as at other times had them sign an agreement accepting the rules, etc of the new company. Your attorney can best advise you as the agreement will or should specify what you will do. |
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Purchasing Another Company
posted at 8/12/2010 2:56 AM EDT
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Posts: 1771
First: 10/24/2002 Last: 9/14/2011 |
I will be doing a thorough due diligence as soon as my boss decides which three companies (he has a list of about a dozen) he wants to buy. I will include this stuff + an employment attorney when I get to the actual due diligence.
Thanks for your comments and suggestions. |
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Purchasing Another Company
posted at 8/12/2010 4:11 AM EDT
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Posts: 1103
First: 3/16/2007 Last: 8/19/2011 |
If you have the time (and the dime - no poem intended) Order the book "The Complete Guide to mergers and Acquisitions" by Timothy Galpin and Mark Herndon. Great reference with lots of tools and samples. |
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Purchasing Another Company
posted at 9/3/2010 7:51 AM EDT
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Posts: 62
First: 9/13/2005 Last: 11/19/2010 |
Generally, if its a stock purchase, then the only thing that is required to change is the owner, and the company can continue operating as normal. Contracts and benefits in the name of the company and employees will continue. Of course, after the purchase, the company can elect to let some of the employees go unless the stock purchase agreement had some language requiring otherwise (they sometimes do, but this is a negotiating point and not a legal requirement). In an asset purchase, just the property of the other company is being bought, and the company will have to operate under a new company name and tax id number (in effect, its a new company). Again, there could be a provision negotiated that requires the new company to hire all of the former employees, but this is not a legal requirement. |
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