USA Law and Practice Contributed by: G. J. Ligelis Jr., Christopher K. Fargo, Alyssa K. Caples and Margaret T. Segall, Cravath, Swaine & Moore LLP
3.2 Regulation of Domestic M&A Transactions All domestic M&A transactions, including those involv - ing FDI, are subject to US antitrust and competition laws as set out in 6. Antitrust/Competition . Foreign investors should bear in mind that any issuance of securities in the USA is subject to the regulatory framework enacted and enforced by the SEC. As a result, a foreign entity intending to offer its shares as consideration in the course of a US merger or acquisi - tion transaction is likely to be required to register the securities with the SEC. 4. Corporate Governance and Disclosure/Reporting 4.1 Corporate Governance Framework Legal Entities The most common legal entity forms in the USA are corporations, partnerships and limited liability compa - nies (LLCs). The most relevant items to consider when choosing a legal entity form include the respective tax treatment, limitations on liability and whether the enti- ty will be privately or publicly held. The most common legal entity form in the USA for publicly traded com - panies is the corporation, but publicly traded LLCs and partnerships also exist. US investment funds are frequently structured as partnerships. Corporate Governance Corporate governance laws derive from both federal and state law, as well as requirements of securities exchanges. Many US corporations are incorporated in the state of Delaware and, as a result, the corpo - rate statutes and case law crafted in Delaware play a prominent role in US corporate governance. Delaware state law imposes fiduciary duties on the officers and directors of a Delaware corporation, as well as on con - trolling shareholders. These fiduciary duties include a duty of loyalty and a duty of care and are owed to the Delaware corporation and its shareholders. Delaware corporations generally follow the share - holder primacy framework in which the officers and directors of the corporation are charged with acting in the best interests of its shareholders. Certain other US states expressly incorporate the interests of other stakeholders into the fiduciary duties owed by officers
Finally, private companies with more disparate share - holder bases can be acquired using a state-law-gov - erned merger, in which the target company is merged with a company (typically a shell acquisition vehicle) owned by the acquirer and the current shareholders receive the consideration for the sale in exchange for their shares in the target company. Unlike a share pur - chase, where each selling shareholder would need to be party to the share purchase agreement, mergers can be approved by the percentage of shareholders required under state law (eg, a majority of the out - standing shares) and are binding on all shareholders of the target company. Investment in Public Companies Due to the dispersed shareholder base of any pub - lic company, acquisitions of public companies use the state-law-governed merger structure described above, structured either as a one-step merger or a two-step transaction. Except for unsolicited/hostile takeovers, the target company board and the acquirer will negotiate the terms of a merger agreement that will govern the transaction, including representations and warranties, restrictions on the target company between signing and closing, risk allocation related to regulatory approvals, conditions to closing, and the ability of the target company to accept superior proposals. In a one-step merger, the merger of the target com - pany with the acquirer’s acquisition vehicle must be approved by the target’s board of directors and then put to a vote of the target company’s sharehold - ers. Once the target company’s shareholders have approved the merger (and any other conditions to closing have been satisfied), the merger will occur and will be binding on all shareholders of the target company. In a two-step transaction, the acquirer will make a public tender offer to the target company’s sharehold - ers to acquire their shares for the merger considera - tion first. Once sufficient shares have been tendered for the acquirer to itself complete a state-law-gov - erned merger to squeeze out the non-tendering share - holders, the acquirer closes on the tender offer and completes the second-step merger to acquire 100% of the target company.
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