Under the regulations of the Commercial Companies Code, mergers may take on one of the following forms:
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Merger by acquisition (incorporation, incarnation), consisting of the transfer of all the assets of the company (taken over) to another company (taking over) for shares or shares which the acquiring company issues to the shareholders of the acquired company, in accordance with Article 492(1)(1) ksh,
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Consolidation by the formation of a new company (unification ), consisting of the establishment of a capital company to which the assets of all merging companies for the shares or shares of a new company are transferred, according to Article 492(1)(2) ksh,.
A common connection is called merger. ‘fusion’ means a collective name for two the types of merger indicated, i.e. acquisition and creation of a new company.
However, it should be stressed that the literature indicates that the concept of fusion is appropriate for the definition of only second connection type - mergers by setting up a new company.
According to this understanding, the merger is nothing more than the creation of a completely new company to which the assets of the existing merging companies are transferred.
The Commercial Companies Code allows for the merger of both capital companies and the merger with personal companies, provided that the passenger company cannot be a acquiring company or a newly established company, and in addition, the partnerships may merge only by the formation of a capital company. Another specific restriction on the merger is the merger ban for the company in liquidation, which has started the division of assets and for the company in bankruptcy.
It is worth noting that the current Ksh rules do not prohibit the use of the so-called reverse merger model when the subsidiary takes over the mother company. However, this structure is relatively rarely used due to the legal, commercial, tax and balance sheet problems that arise in its analysis.
The nature of the merger is the principle of legal succession, which states that the acquiring company or the newly established company enters into all the rights and obligations of the acquired company or the merging companies by the new company. The principle of succession also applies on tax grounds and is expressed under Article 93 Order. Possible restrictions in this regard, in the form of exceptions to the general rule, when so provided by a specific provision.
The capital company (taking over or newly established) always enters into all the rights and obligations of the company being acquired or merged by the new company (Article 494(1) KSH). Thus, regardless of the nature of the merger and the nature of the mergers, the acquiring company (newly established) is always a capital company, which, according to the content Article 1(1) the Corporate Income Tax Act, an income tax taxpayer.
The acquisition by the acquiring company or the newly established company, when merging the companies, is the property of the acquired companies and the equivalent of the acquired assets is not the money, but the equity rights of the acquiring company or the newly bound company, i.e. shares or shares allocated to shareholders or shareholders of companies which lose their legal status and who become shareholders of the acquiring or newly bound company.
The merger process consists of several stages, from the process of agreeing the method and the basis of the merger to its final settlement, both on balance sheet and tax.
The most important part of the procedure is the preparation of merger documents, among which the merger plan, drawn up in practice by the boards of merging companies, is essential.
In this plan, among the information related to the acquiring company or the newly established company, it is necessary to establish the so-called exchange parity.
This is the ratio of the exchange of shares (shares) of the company being acquired (at the incorporation) or of the companies merging by the creation of a new company for shares (shares) of the acquiring company or of the newly bound company – this is a fundamental element of the merger plan.
It specifies the relationship between the assets of the acquired company and the amount and nominal value of the shares or shares issued by the acquiring company to the shareholders of the acquired company.
In practice, the calculation of the exchange parity may result in the situation that, after precise calculations, the value allocated to the shareholders of the company being acquired (shares of the companies merging by the creation of the new company) of the shares in the acquiring company or shares in the newly established company will differ from the value of the shares or shares held by them in the acquired company (company merging by the formation of the new company). Then the partners should be compensated, called subsidies, the value of which should be specified in the merger plan.
Consequently, when examining the merger process, attention should be paid to the following legal issues:
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connecting documents - the completion of the merger requires the drawing up of a merger plan together with the following annexes (these documents are audited by the auditor):
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- draft merger resolutions,
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- draft amendments to the contract of the acquiring company,
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- information on the value of the assets of the company acquired on a given day in the month preceding the submission of the request for a merger plan,
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- a statement of the accounting status of the acquiring company on a given day in the month preceding the submission of the request for a merger plan, drawn up using the same methods and in the same arrangement as the last annual balance sheet,
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- a statement of the accounting status of the company acquired on a given day in the month preceding the submission of the request for a merger plan, drawn up using the same methods and in the same arrangement as the last annual balance sheet.
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- the management boards of all merged companies are required to draw up a report for the purposes of the merger indicating the legal and economic bases of the merger,
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identification of the exchange parity – it is necessary to establish the exchange parity, i.e. the ratio of the exchange of shares/shares of the company being acquired into shares of the acquiring company and the amount of any subsidies. The exchange parity should be determined on the basis of the valuation of the value of the companies involved in the merger,
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the determination of the value of the increase in the share capital of the acquiring company or the amount of the share capital of the newly bound company,
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merger resolutions – preparation of merger resolutions of equal content to each of the merging companies. Resolutions should be adopted by qualified majority,
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General succession - on the date of merger, the acquiring company enters into, by law, all rights and obligations of the acquired company (the principle of general succession).
However, it should be noted that where a merger is made under Article 516(6) KSH, and thus in the case of the acquisition by the acquiring company of its single-member company, the legal procedure is significantly simplified, among others.