Contract law governs the enforceability of agreements in any corporate endeavor. Whether it’s a merger, acquisition, or transfer, a written document is always involved. Initial exchanges—letters of intent, memoranda of understanding, or even emails—lay the groundwork for future agreements. The boards and their counsel must define the parameters of these discussions. There will be plenty of time later for the formal filings with the SEC and government entities, but the immediate goal is aligning with the company’s objectives and acting in the best interests of shareholders. Is the transaction meant to gain an advantage, ensure survival, or expand the business scope?
An initial agreement, such as a memorandum of understanding (MOU), allows both corporations to begin their due diligence. This process involves reviewing financial statements, assessing property and assets, and gathering legal opinions to justify the transaction to shareholders. It’s crucial that all internal agreements and disclosures be in writing. Public filings required by law further document the reasoning behind the transaction, company status, risks, and potential benefits to both parties.
Written agreements also become vital in litigation. Even in amicable deals, litigation is always a possibility, and parties must be prepared. The issue of «discoverability» can arise if emails or communications between executives and legal counsel become subject to scrutiny in court. A single email referencing a key term could have material impacts on the case or the deal itself.
Errors in the negotiation process, like missing a government filing, can trigger penalties and jeopardize the entire deal. Legal counsel must track these filings, as part of their duty to the corporation and as legal professionals.
With the importance of written documentation established, the next consideration is prioritization. Boards should first protect themselves while balancing corporate objectives. Deals are often categorized into two scenarios: survival or strategic advantage. In a survival transaction, financial projections and timelines may take precedence, as there’s a need to finalize the MOU before bankruptcy looms. In contrast, a company seeking to expand might prioritize acquiring assets or offering dividends to secure shareholder approval.
Now that we’ve discussed the early stages of a transaction, the next focus is on documentation with government entities and foreign actors. While we’ve primarily addressed U.S. contract law, international transactions introduce complexities. Foreign corporations or interested parties may bring unique considerations, such as differing contract laws and jurisdictional questions. The letter of intent, for example, might specify which jurisdiction governs the deal, what currency will be used, and where the new entity will be based.
Contract law varies significantly when a transaction crosses borders, especially when the resulting corporation will operate overseas. In these situations, the party with the most influence often dictates the terms, typically aligning documentation with U.S. common law or the controlling state’s law. While concessions may be made during negotiations, the resulting agreements often benefit both parties without breaching fiduciary duties or legal obligations.
Reynaldo Emilio Pineda Ulloa
