EU Legislation concerning merges of Public Limited Liability Companies
Even if national legislation regulates the mergers in the major cases, the EU legislation has its own laws regulating the mergers done in EU-region. One of the ways EU regulates mergers is the Directive 2011/35/EU that regulates the mergers of public limited liability companies.
Mergers has following consequences:
- In the relation between the company being acquired and the acquiring company and also to third party- companies all the assets and responsibilities are transferred to acquiring company;
- Shareholders of the company being acquired become shareholders of acquiring company;
- Company acquired ceases to exist
The directive recognizes two basic ways to merger a company to another:
First one is ‘merger by acquisition’ by one or more companies. In this case, the company/companies that are object of acquisition transfer their assets and responsibilities to acquiring company, and the shareholders will gain shares of acquiring company. Directive also makes possible to have cash compensation for shareholders of acquired company. However, this compensation cannot exceed 10% of the face value of the shares amount. In the case of merger by acquisition, the administrative board of company or another management body shall draft the terms of the merger. Terms of merger shall include:
- Type, name and registered office of the company;
- The share exchange ratio and the amount of cash payment;
- Terms of distributing the shares;
- The date from which date the shareholders will gain profits and all other special conditions affecting that entitlement;
- The date when the transactions of the company being acquired shall be treated in accounting purposes as a transactions of the company acquiring
- The rights conferred by the acquiring company on the holders of shares to which special rights are attached and the holders of securities other than shares, or the measures proposed concerning them;
- All the special advantage granted for:
-Experts acting behalf of the company examining the merger and shall draw up written report for shareholders
-Members of merging companies’ administrative, management, supervisory or controlling bodies
The terms of the draft shall be published at least one (1) month before the general meeting that decides about the merger. The merger shall require at least the acceptance of general meeting, and the acceptance requires 2/3 of the votes attached either to amount of shares or the capital attached to shares. The Member State legislation may require that simply majority of the votes are enough, in this case at least half of the capital must be represented.
However, the merger does not need the acceptance of Member state’s laws if the following conditions are fulfilled:
- Accordance with the Article 6 of the Directive. All the publications needed must be available at least one month before the general meeting that is to decide the terms of the merger
- One or more shareholders holding a minimum percentage of the subscribed capital, shall have entitle requiring the general meeting of deciding the merger
Another way to merger is ‘merger by the formation of a new company’. In this case also the assets and liabilities are exchanged to shares of the new company and cash payment that is maximum of 10% of the nominal value of the shares. In merger by the formation of a new company, the administrative or management board shall draw same kind of terms of merger as abovementioned in case of merger by acquisition. Also, the terms of merger must be published one (1) month before the general meeting shall be held. The merger requires same kind of acceptance as merger by acquisition. When merger by the formation of a new company takes full power, the company will cease.
The EU Directive 2005/56/EC regulates the cross-border mergers. The regulations are similar to Directive 2011/35/EU. However, there are some differences between the Directives.
The general conditions for the cross-border mergers gives for member states a room for own legislation: the mergers beyond the borders of the member state shall be possible only for companies that are permitted to do so by national legislation. The merger shall comply with the national legislation also in other parts. The draft terms of the merger shall include the same things as Directive 2011/35/EU regulates, with some minor additions.
The cross-border merger needs a pre-merger certificate from court, notary or another competent authority to review the legality of the merger. The competent authority shall supervise the completion of the merger and formation of the new company resulting from the merger, if the company created is subject of its national laws. The cross-border merger shall take effect according the law of the member state where the company will result. After the merger takes effect it will become binding.