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What is the difference between mergers and consolidations?

Once you have made the decision to join your business with another business, under Ohio law you are legally able to combine two or more entities into a single entity. Yet you still have a choice to make, and one of those choices is whether or not to undertake a merger or a consolidation. But what is the difference between a merger and a consolidation, and why choose one over the other?

Per the Ohio Secretary of State, a merger is when one or more business entities merge into a single surviving entity. For example, if you have Company A, Company B, and Company C, and Companies B and C merge into Company A, then Company A continues to exist with Companies B and C as a part of it. During a merger, essentially other corporate entities become a part of an existing entity. This can be useful for smaller companies merging into larger companies that have greater brand recognition and market traction.

Conversely, a consolidation is when multiple companies join to form a new entity. In this example, when Companies A and B consolidate together, the end result is a new operating entity, Company C. This can be useful when seeking brand differentiation from former entities, or starting anew with a brand refresh based on past reputation. It can also be useful if attempting to leverage the market capital of both brands by forming a new hybrid entity.

This has been an informational blog post meant only for reference purposes. It does not stand as a substitute for legal advice.

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