Mergers and amalgamations of companies: the procedure

Mergers and amalgamations of companies are among the more demanding legal processes through which companies combine their activities. Although the two terms sound very similar, they are two different situations with their own rules and consequences. In this article, we explain the difference between them clearly and go through the general procedure, so that you know exactly what such a demanding transaction actually involves.

The difference between a merger and an amalgamation

In a merger, one company ceases to exist and its assets and liabilities are taken over by another company that already exists. In an amalgamation, on the other hand, all the participating companies cease to exist and an entirely new company is created. Mergers and amalgamations of companies therefore lead in both cases to the combination of assets, but they differ in the ultimate fate of the original companies.

Why companies decide to combine

There are usually several reasons – an effort to save costs, strengthening the company’s position on the market, simplifying the group structure or taking over a competitor. Combining companies can bring interesting synergies, but at the same time it requires thorough and professional preparation.

• Savings in operating and administrative costs.
• Strengthening the market position and capital.
• Simplifying the ownership structure.
• Taking over know-how or a customer base.

The procedure for a merger or amalgamation

The process is formalised and takes place in several steps, which must be properly documented.

1. Preparing a draft merger or amalgamation agreement.
2. Approval of the transaction by the bodies of the participating companies.
3. Fulfilling the information obligations and creditor protection requirements.
4. Entering the changes in the Commercial Register (ORSR) and the original companies ceasing to exist.

Protection of creditors and employees

Since combining companies also affects third parties, the law provides for several protective mechanisms. The creditors of the companies that cease to exist have certain rights and must be informed about the transaction so that they can protect their claims. At the same time, the rights and obligations towards employees also pass to the successor company, which means that employment relationships do not, as a rule, end but continue with the new employer. These aspects should not be underestimated, because neglecting them can lead to disputes and delay the entire transaction.

Accounting and tax implications

Combining companies has significant accounting and tax implications, including preparing financial statements and transferring assets. This is an extremely complex area, where professional accounting and tax assistance is practically indispensable to avoid mistakes with financial consequences. Always check the current fees and deadlines associated with entry in the register in advance.

Preparation and time required

Combining companies is not a matter of a few days – it is a process that requires thorough preparation, coordination of several parties and compliance with statutory time limits. Aligning the accounting systems, contracts and internal processes of both companies should not be underestimated either. The better prepared the transaction is, the more smoothly it will go and the fewer risks it will carry.

• Thorough preparation of the draft and the documentation.
• Coordination of the bodies of the participating companies.
• Aligning the accounting and contracts.
• Complying with statutory time limits and obligations.

Why professional guidance is important

The process of merging or amalgamating companies combines law, accounting and taxes, and a mistake can be costly. Bilvao’s accountants will help you prepare the documents, account for everything correctly and meet all the deadlines, so that the entire transaction runs smoothly and in compliance with the applicable regulations.

Related articles: Liquidation of an s.r.o.: how to close a company properly, Selling and buying an s.r.o.: what to watch out for, Bankruptcy and restructuring: a basic overview.

Frequently asked questions

What is the difference between a merger and an amalgamation?

In a merger, one company ceases to exist and its assets and liabilities are taken over by another existing company. In an amalgamation, all the participating companies cease to exist and an entirely new company is created. In both cases the assets are combined; what differs is the fate of the original companies.

What happens to employees when companies merge?

The rights and obligations towards employees generally pass to the successor company. The law also provides for protective mechanisms for both creditors and employees. Check the specific conditions and obligations against the current legislation or with an expert.