The decision to conduct a corporate merger is typically made because of the economic or market condition of the companies, in order to optimise administrative costs (bearing in mind the tax aspects) or for reasons related to restructuring within the capital group.
Permissibility of merger
The Commercial Companies Code regulates what types of entities may merge:
- Capital companies (i.e. joint-stock companies and limited-liability companies) may merge with one another or with commercial partnerships, but the partnership may not be the acquirer or the company newly formed pursuant to the merger.
- A capital company or a joint-stock limited partnership may merge with a foreign company established under the laws of another member state of the European Union or the European Economic Area with its registered office, central administration or principal place of business in the EU or EEA (cross-border merger), but a joint-stock limited partnership may not be the acquirer or the company newly formed pursuant to the merger.
- Commercial partnerships may merge with one another only by establishing a capital company.
- More than two companies may participate in a merger.
- A company in liquidation that has begun distribution of its assets, or a company in bankruptcy, may not be involved in a merger
Forms of merger
There are two distinct forms of merger:
- Merger by acquisition—the company or companies being acquired transfer all their assets to another company, the acquirer, in exchange for shares in the acquirer, which are taken up by the shareholders of the target.
- Merger by establishment of a new company — a new capital company is established to which the assets of all the merging companies are transferred in exchange for shares in the newly formed company, which are taken up by the shareholders of the merging companies.
Rights and obligations after the merger
As of the merger date, the rights and obligations of the company being acquired or the companies merging by forming a new company pass to the acquirer or the newly formed company by operation by law. More specifically, concessions, exemptions and entitlements that are part of the assumed assets pass to the acquiring or newly established company (unless otherwise provided by law or by the decision establishing such rights).
The merger date is the date the relevant entry is made in the National Court Register. The entry is a technical matter, and for organisational or tax reasons companies often request registration on a specific date. The court is not bound by such request, but generally will comply.
The acquirer or the new company formed through the merger assumes all tax-law rights and obligations of each of the merging entities.
Main stages of merger
- Preparation stage
– Preparing documentation needed for the merger (merger plan and enclosures)
- Decision stage
– Adoption of merger plan by the shareholders and management boards of the merging companies
– Preparation by the management boards of the merging companies of reports justifying the merger and its legal and economic grounds, in particular the share exchange ratio
– Application to appoint an auditor to examine the merger plan
– Filing of merger plan with the National Court Register and publication of the merger plan
– Notice to shareholders of the merging companies (twice)
– Adoption of merger resolution
- Registration stage
– Filing of motion to register the merger
– Registration of the merger.
In practice, apart from an ordinary merger, an acquirer which is the sole shareholder of the company being acquired or holds at least 90% of the shares of the target may conduct a simplified merger, not requiring:
- Preparation of a written report justifying the merger
- Review of the merger plan by an auditor
- A resolution of the shareholders’ meeting approving the merger
A simplified merger may be conducted in a shorter time, i.e. within about 3 months. (By contrast, the standard merger procedure typically takes about