question: When a company buys out another company how does money transfer? I doubt someone writes a check fir a couple million/billion dollars and hands it over. I've never understood this.
comment: This may not be exactly what you're asking, but in my experience the actual logistical transfer of money is usually accomplished via a wire. There's a target closing time, and when lawyers from both sides signal that the deal is done, we typically release our side's signature pages on the agreement to the other side and notify the buy side to release that wire. (It's a really heady experience waiting for confirmation from the bankers that such an amount of money has hit the account.) There's usually then a process of closing of sub transactions for shareholders or employees with equity to get their cut, which is also fun, and depending on how organized the lawyers are can be either frantic or seamless. If it's a stock transaction or partial stock transaction, there's sometimes a weirdly archaic process of getting surrender of physical stock certificates from the shareholders on the sell side and correction of the stock ledger, plus issuance of stock certificates on the buy side. That part has always struck me as unnecessarily old fashioned. Once had a deal delayed because some random software programmer with a tiny fraction of the company was out of town. Also sometimes the deals are done with earnouts, where certain amounts of the buy price are paid out over a period of two or three years with adjustments up or down based on revenue or EBITDA targets.
passages: Section::::Documentation.
  
  The documentation of an M&A transaction often begins with a letter of intent. The letter of intent generally does not bind the parties to commit to a transaction, but may bind the parties to confidentiality and exclusivity obligations so that the transaction can be considered through a due diligence process involving lawyers, accountants, tax advisors, and other professionals, as well as business people from both sides.
   The Securities and Exchange Board of India mandates that only private companies can choose this method of issuing securities.
  
  Section::::Features.
  
  BULLET::::- Parties – There are three parties involved in a bought out deal; the promoters of the company, sponsors & co-sponsors who are generally merchant bankers and investors
  
  BULLET::::- Outright sale – There is an outright sale of a chunk of equity shares to a single sponsor or a lead sponsor
  
  BULLET::::- Syndicate – The sponsor forms a syndicate for management of resources required & distribution of risk
   These funds may be held directly by the real estate broker (as in the State of New York) or by a settlement or title company (as in states like California, Florida, and Texas).
  
  When the transaction is settled then the deposit is applied to the buyer's portion of the remaining costs. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into. Laws vary as to what happens with the deposit should the buyer fail to perform on the contract.
  
  Section::::See also.
  
  BULLET::::- King's shilling
  
  BULLET::::- List of real estate topics
   The common practice is for an "exchange of contracts" to take place. This involves two copies of the contract of sale being signed, one copy of which is retained by each party. When the parties are together, both would usually sign both copies, one copy of which would be retained by each party, sometimes with a formal handing over of a copy from one party to the other. However, it is usually sufficient that only the copy retained by each party be signed by the other party only. This rule enables contracts to be "exchanged" by mail. Both copies of the contract of sale become binding only after each party is in possession of a copy of the contract signed by the other party—ie., the exchange is said to be "complete". An exchange by electronic means is generally insufficient for an exchange, unless the laws of the jurisdiction expressly validate such signatures.
   Often fraudulent transfers occur in connection with leveraged buyouts (LBOs), where the management/owners of a failing corporation will cause the corporation to borrow on its assets and use the loan proceeds to purchase the management/owner's stock at highly inflated prices. The creditors of the corporation will then often have little or no unencumbered assets left upon which to collect their debts. LBOs can be either intentional or constructive fraudulent transfers, or both, depending on how obviously the corporation is financially impaired when the transaction is completed.
   Transfer agents provide a variety of services to issuing companies, including: maintaining a registry of all shareholders, paying dividends and conducting proxy campaigns. Most investments in US equities, corporate bonds and municipal bonds are now held in book entry form, rather than certificates as was the case as recently as the early 1970s when Depository Trust & Clearing Corporation (DTCC) began operations. Thus with the general acceptance of stock immobilization at the central depository, most of the registry function has shifted to reconciling daily immobilized positions with DTCC's nominee firm, Cede & Co. For example, a company has issued 10 million shares. 100,000 shares have been issued in certificated form to a variety of investors. The transfer agent keeps detailed records of these, and verifies the legitimacy of any certificate presented to it. The other 9,900,000 have been purchased by investors who hold them in book entry form through accounts at broker-dealers (retail), custodians and prime brokers (institutional). The "owner" of those 9,900,000 shares on the transfer agent's registry would be Cede & Co., DTCC's nominee company.
   BULLET::::- Negotiation often enables the transferee to become the party to the contract through a contract assignment (provided for explicitly or by operation of law) and to enforce the contract in the transferee-assignee’s own name. Negotiation can be affected by endorsement and delivery (order instruments), or by delivery alone (bearer instruments). In addition, the rights and obligations accruing to the transferee can be affected by the rule of derivative title, which does not allow a property owner to transfer rights in a piece of property greater than his own.
  
  Section::::Limitations.
   Owners of ADRs are typically notified in writing at least thirty days prior to a termination. Once notified, an owner can surrender their ADRs and take delivery of the foreign securities represented by the Receipt, or do nothing. If an ADR holder elects to take possession of the underlying foreign shares, there is no guarantee the shares will trade on any U.S. exchange. The holder of the foreign shares would have to find a broker who has trading authority in the foreign market where those shares trade. If the owner continues to hold the ADR past the effective date of termination, the depositary bank will continue to hold the foreign deposited securities and collect dividends, but will cease distributions to ADR owners.
   In a typical transaction for the sale of real estate encumbered by a private transfer fee assessment, a contract for purchase of the real property is receipted at the title company. The title company then provides the prospective purchaser with a title commitment showing all encumbrances of record, including the transfer fee assessment. Alternatively, the closing process may be handled by an attorney, and an abstract of title provided in lieu of the title commitment. During this “title review” period, the prospective purchaser decides whether or not to proceed with the transaction.
   BULLET::::1. Issuance and Transfer: Issue and cancel certificates to reflect changes in ownership. For example, when a company declares a stock dividend or stock split, the transfer agent issues new shares. Transfer agents keep records of who owns a company's stocks and bonds and how those stocks and bonds are held—whether by the owner in certificate form, by the company in book-entry form, or by the investor's brokerage firm in street name. They also keep records of how many shares or bonds each investor owns.
   The acquired company records in its books the elimination of its net assets and the receipt of cash, receivables or investment in the acquiring company (if what was received from the transfer included common stock from the purchasing company). If the acquired company is liquidated then the company needs an additional entry to distribute the remaining assets to its shareholders.
  
  Section::::Accounting treatment (US GAAP).:Purchase of Common Stock.
  
  Treatment to the purchasing company:
   According to Section 43 of the Transfer of Property Act 1882, in case a person either fraudulently or erroneously represents that he is authorized to transfer certain immovable property and does some acts to transfer such property for consideration, then such a transfer will continue to operate in future. It will operate on any interest which the transferor may acquire in such property.
   The rise of globalization has exponentially increased the necessity for agencies such as the Mergers and Acquisitions International Clearing (MAIC), trust accounts and securities clearing services for Like-Kind Exchanges for cross-border M&A. On a global basis, the value of cross-border mergers and acquisitions rose seven-fold during the 1990s. In 1997 alone, there were over 2,333 cross-border transactions, worth a total of approximately $298 billion.
   According to Section 6 of the Transfer of Property Act, the property of any kind may be transferred. The person insisting non-transferability must prove the existence of some law or custom which restricts the right of transfer. Unless there is some legal restriction preventing the transfer, the owner of the property may transfer it. However, in some cases, there may be a transfer of property by an unauthorized person who subsequently acquires an interest in such property.
   Every person, who is competent to contract, is competent to transfer property, which can be transferred in whole or in part. He should be entitled to the transferable property, or authorized to dispose of transferable property which is not his own. The right may be either absolute or conditional, and the property may be movable or immovable, present or future. Such a transfer can be made orally unless a transfer in writing is specifically required under any law.
   After due diligence is complete, the parties may proceed to draw up a definitive agreement, known as a "merger agreement", "share purchase agreement" or "asset purchase agreement" depending on the structure of the transaction. Such contracts are typically 80 to 100 pages long and focus on five key types of terms:
  
  BULLET::::- Conditions, which must be satisfied before there is an obligation to complete the transaction. Conditions typically include matters such as regulatory approvals and the lack of any material adverse change in the target's business.
   In certain circumstances, it may be possible for the management and the original owner of the company to agree a deal whereby the seller finances the buyout. The price paid at the time of sale will be nominal, with the real price being paid over the following years out of the profits of the company. The timescale for the payment is typically 3–7 years.
   There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications:
  
  BULLET::::- The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.
   Often a company acquiring another pays a specified amount for it. This money can be raised in a number of ways. Although the company may have sufficient funds available in its account, remitting payment entirely from the acquiring company's cash on hand is unusual. More often, it will be borrowed from a bank, or raised by an issue of bonds. Acquisitions financed through debt are known as leveraged buyouts, and the debt will often be moved down onto the balance sheet of the acquired company. The acquired company then has to pay back the debt. This is a technique often used by private equity companies. The debt ratio of financing can go as high as 80% in some cases. In such a case, the acquiring company would only need to raise 20% of the purchase price.
   Corporate acquisitions can be characterized for legal purposes as either "asset purchases" in which the seller sells business assets to the buyer, or "equity purchases" in which the buyer purchases equity interests in a target company from one or more selling shareholders. Asset purchases are common in technology transactions where the buyer is most interested in particular intellectual property rights but does not want to acquire liabilities or other contractual relationships. An asset purchase structure may also be used when the buyer wishes to buy a particular division or unit of a company which is not a separate legal entity. There are numerous challenges particular to this type of transaction, including isolating the specific assets and liabilities that pertain to the unit, determining whether the unit utilizes services from other units of the selling company, transferring employees, transferring permits and licenses, and ensuring that the seller does not compete with the buyer in the same business area in the future.
   BULLET::::- Negotiation: “Yes” may not be synonym that the parties have reached an agreement. Getting immediately to the point may not be considered appropriate in some cultures and even considered rude. The negotiations may continue to the last minute, sometimes even after the deal has been officially closed, if the seller keeps some leverage, like a minority stake, in the divested entity. Therefore, establishing a strong local business network before starting acquisitions is usually a prerequisite to get to know trustable parties to deal with and have allies.
   Prior to modern financial market technologies and methods such as depositories and securities held in electronic form, securities settlement involved the physical movement of paper instruments, or certificates and transfer forms. Payment was usually made by paper cheque upon receipt by the registrar or transfer agent of properly negotiated certificates and other requisite documents. Physical settlement securities still exist in modern markets today mostly for private (restricted or unregistered) securities as opposed to those of publicly (exchange) traded securities; however, payment of money today is typically made via electronic funds transfer (in the U.S., a bank wire transfer made through the Federal Reserve's Fedwire system). Physical/paper settlement involves higher risks, inasmuch as paper instruments, certificates, and transfer forms are subject to risks electronic media are not, such as loss, theft, clerical errors, and forgery (see indirect holding system).
   Even mergers of companies with headquarters in the same country can often be considered international in scale and require MAIC custodial services. For example, when Boeing acquired McDonnell Douglas, the two American companies had to integrate operations in dozens of countries around the world (1997). This is just as true for other apparently "single-country" mergers, such as the 29 billion-dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now Novartis).
  
  Section::::Cross-border.:In emerging countries.
   Mergers are generally differentiated from acquisitions partly by the way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist:
  
  Section::::Financing.:Cash.
  
  Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders.
  
  Section::::Financing.:Stock.
   Many commercial transactions involve both the law of obligations and the law of property, and so have both proprietary and obligationary or contractual elements. A contract of sale, for instance, obliges the seller to deliver the thing being sold to the buyer. As such, it is the "causa", or underlying reason, for the subsequent transfer of ownership. It does not, however, effect the transfer, which is accomplished by the real or transfer agreement (the concurring intentions of the parties to make and receive transfer of ownership). If the underlying contract is invalid, ownership nonetheless passes, because South African law adheres to the abstract rather than the causal system of transfer. The transferor, however, generally has the option of a restitutionary action to recover the property.
  