What is a Target Company? A Comprehensive Legal Overview
Definition & Meaning
A target company is a business that a potential acquirer identifies as a suitable candidate for acquisition. This process often involves purchasing shares or merging with the target company. When an acquirer buys up to five percent of the target company's stock, they do not have to publicly disclose this purchase. However, once the acquirer acquires five percent or more of the stock, they must report these transactions to the Securities and Exchange Commission (SEC) and inform the target company.
Legal Use & context
The term "target company" is commonly used in corporate law, particularly in the context of mergers and acquisitions (M&A). Legal professionals may encounter this term when advising clients on potential acquisitions or during negotiations. Understanding the implications of acquiring a target company is essential for compliance with federal securities laws and regulations. Users can manage some aspects of this process themselves with the help of legal templates available through US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A technology firm identifies a smaller startup as a target company. After conducting due diligence, the firm decides to acquire 60 percent of the startup's shares through a merger.
Example 2: A large retail chain buys five percent of a competing company's stock. Since this is below the five percent threshold, they are not required to disclose the purchase publicly. However, once they cross the threshold, they must report it to the SEC and inform the target company.