“Merger and Acquisition” – or M&A – is a familiar phrase in business, but in UK company law, there’s an important distinction between the two. In fact, the concept of a “merger” as a legal structure doesn’t really exist in the UK in the same way it does in other jurisdictions – particularly the United States.
This article outlines the key differences, and explains how M&A transactions are typically structured under English law.
No true merger structure under UK law
Unlike in the US, where companies can legally merge under state law – for example, by one company being absorbed into another, or two companies merging into a new legal entity – English company law doesn’t offer a simple statutory merger route for most companies.
Instead, what may be described in commercial terms as a “merger” is usually structured as an acquisition under English law. The target company remains intact (or is later wound up) and the buyer acquires control either by purchasing shares or assets.
Acquisitions of UK companies: how they work
1. Public companies
Acquisitions of UK-listed companies are governed by the City Code on Takeovers and Mergers (Takeover Code). The most common method is a recommended offer with target company board support (as opposed to a hostile takeover) or a scheme of arrangement.
A scheme of arrangement is a court-approved process under the Companies Act 2006 that allows a buyer to acquire 100% of a target’s shares in one go, provided the shareholders and the court approve it. This method is often preferred because:
- it provides certainty of outcome (once approved, all shares transfer)
- it binds all shareholders, avoiding the need to acquire shares individually
- it tends to be efficient and streamlined, especially for friendly deals
- no stamp duty is payable on a scheme of arrangement – which, in large transactions, can result in a saving of millions of pounds
It’s worth noting that schemes of arrangement are only available for certain types of companies and must follow strict procedural steps, including court hearings and shareholder votes.
2. Private companies
For private limited companies, acquisitions are usually done through a negotiated share sale, where the buyer purchases the shares of the target company from the existing shareholders.
The target company remains legally in existence – what changes is who owns it. The transaction is governed by a share purchase agreement and related documents covering price, completion mechanics and warranties.
This is by far the most common structure for UK private company deals and offers flexibility for both buyer and seller in terms of negotiating terms, timing and tax treatment.
Final thoughts
While “mergers” are common language in business, UK law focuses on acquisitions, whether by public offer or private sale. The true legal merger mechanisms familiar in the US don’t exist in the same way here. Instead, deals are carefully structured using the available tools under English company and takeover law.
How can we help?
At PaperRock Documents, we offer expertly drafted templates for private company share purchase transactions, including:
- Heads of Terms and other preliminary agreements
- Legal due diligence checklists
- Share Purchase Agreements
- Disclosure Letters
- Ancillary transaction documents
- Guidance notes to support you throughout
Whether you’re buying or selling a private company, our documents are designed to help you complete the deal confidently, quickly and compliantly.
